We came across a bullish thesis on FedEx Corporation (FDX) on Rijnberk InvestInsights’ Substack by Daan Rijnberk. In this article we will summarize the bulls’ thesis on FDX. FedEx Corporation (FDX) share was trading at $298.17 as of Sept 18th.
A driver unloading packages from a van for a time-critical delivery.
FedEx continues to be a key player in the logistics and delivery markets, despite a general lack of customer enthusiasm. The U.S. ground delivery and global express markets, where FedEx excels, are projected to grow at mid-single-digit rates, with the U.S. expected to expand at a CAGR of 4.5% and global express at 6% through the decade. FedEx’s dominant position in these markets positions it well to benefit from this growth.
Financially, FedEx reported a 1% increase in Q4 revenue year-over-year to $22.1 billion, signaling a recovery from previous declines. For FY24, the company posted a 19% increase in EPS to $5.41 and a 16% rise in operating income to $6.2 billion, driven by a 110 basis point improvement in operating margin. Full-year free cash flow (FCF) grew by 14% to $4.1 billion, with significant shareholder returns of $4 billion through repurchases and dividends. Capex reductions and cost-saving initiatives have been key contributors to these improvements.
FedEx’s DRIVE and Network 2.0 programs are expected to yield $6 billion in cost savings, with $4 billion targeted for realization by 2025. The merger of Ground and Express into “One FedEx” is anticipated to deliver $2 billion in savings and enhance operational efficiency. The company is ahead of schedule on several efficiency targets, achieving a reduction in capex to below 6.5% of revenue and delivering $1.8 billion in structural cost cuts in FY24.
Valuation-wise, FedEx trades at approximately 14x earnings, a 25% discount to the sector average and in line with long-term historical multiples. This valuation reflects a deep value opportunity, with a projected target price of $387, based on a conservative 16x multiple. This implies potential annual returns of around 15%, presenting a compelling investment case. Given the company’s strong market position, ongoing cost-saving measures, and positive growth outlook, FedEx remains a solid “Buy”
FedEx Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 59 hedge fund portfolios held FDX at the end of the second quarter which was 56 in the previous quarter. While we acknowledge the risk and potential of FDX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FDX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.