We recently compiled a list of the 7 Cheap Transportation Stocks to Buy According to Analysts. In this article, we are going to take a look at where FedEx Corporation (NYSE:FDX) stands against the other cheap transportation stocks.
The 33rd Annual Study of Logistics and Transportation Trends was posted on Supply Chain Management Review (SCMR) on September 12. It highlighted the growing challenges facing the logistics and transportation industry as market conditions, regulations, and technological advancements evolve.
The study surveyed over 200 industry professionals, of which 85% had 15+ years of experience and 80% held senior positions. The report provides insight into spending trends, strategies, performance, and regulatory impacts.
The study noted a significant decline in private fleet spending, down to 7.23%, while intermodal transport spending reached a decade-high of 6.5%. Larger shippers (sales over $3 billion) generally align with these trends but spend less on small package and less-than-truckload (LTL) services.
All performance metrics tracked in the study saw declines from 2023, with profitability, return on assets, competitive positioning, and revenue growth all down. Customer satisfaction remained high but showed signs of strain.
Talent shortages were a critical issue, especially in mid-level management and low-wage positions. Companies struggle to offer training due to a lack of time and knowledgeable trainers, with only 39% having formal learning programs. While logistics jobs offer stability and growth opportunities, they are perceived to lag in flexibility and benefits.
Growth Despite Challenges
According to Benchmark International, the global freight and logistics market is projected to grow to $18.69 billion by 2026, with a 4.4% annual growth rate. The logistics segment alone is expected to reach $6.55 trillion by 2027, growing at 4.7% per year. The market includes services like transportation, warehousing, consultation, and packaging across several industries such as manufacturing, agriculture, and construction. Asia-Pacific leads the market share, while North America is expected to grow the fastest by 2027.
Some of the most significant drivers of growth include trade agreements, technological advancements, and globalization. Innovations such as AI, blockchain, and GPS have streamlined logistics operations. The surge in e-commerce and online shopping has also fueled demand for efficient delivery systems, especially “last-mile” services, which represent the costliest part of shipping. The rise of the gig economy, where local couriers fulfill deliveries, has helped reduce these costs.
Sustainability is becoming a focus in logistics, with green initiatives offering fuel savings and appealing to eco-conscious consumers. Furthermore, mergers and acquisitions in the trucking and maritime sectors are expected to increase in 2024, which are driven by lower interest rates and advancements in fleet management technologies.
Our Methodology
For this article, we used transportation ETFs to identify nearly 40 stocks. Next, we narrowed our list to 7 stocks with the lowest PE ratios and highest average analyst price target, as of September 20. The PE ratio of all the stocks in our list is lower than 20.
We also mentioned the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A driver unloading packages from a van for a time-critical delivery.
FedEx Corporation (NYSE:FDX)
Average Analyst Price Target Upside as of September 20: 24.69%
PE Ratio (FWD) as of September 20: 12.82
Number of Hedge Fund Holders: 59
FedEx Corporation (NYSE:FDX) has built a remarkable legacy since its inception in 1973, evolving into a global leader in transportation and logistics. With services reaching over 220 countries and territories, it offers a diverse range of solutions, including overnight shipping, freight transportation, and comprehensive logistics services.
FedEx Express has maintained its position as the industry leader in express transportation, thanks to its innovative approach to logistics. It provides worldwide customers with overnight delivery services and international shipping solutions.
FedEx Freight stands out as a key provider of less-than-truckload (LTL) freight services across North America, catering to both businesses and residential customers. Additionally, FedEx Logistics enhances its offerings with a suite of integrated solutions, including air and ocean cargo transportation, customs brokerage, and supply chain management.
In its fiscal 2025 first quarter, the company reported earnings of $3.60 per share on revenue of $21.6 billion, which fell short of analysts’ expectations. While this may raise concerns, it is important to recognize the company’s ongoing initiatives aimed at improving efficiency and reducing costs.
Recently, the company has prioritized consolidation efforts through its “One FedEx” initiative, which merged FedEx Ground and FedEx Services into Federal Express to streamline operations and enhance overall effectiveness. This was complemented by the rollout of Network 2.0, designed to optimize surface operations across the U.S. and Canada.
The company is also embracing technology with initiatives like the DRIVE program, which focuses on data-driven decision-making and cost reduction. The goal is to achieve $4 billion in structural cost savings by the end of the fiscal year.
While current demand has faced challenges due to a slowing economy, some analysts remain optimistic about FedEx’s (NYSE:FDX) future. On September 20, Raymond James analyst Patrick Tyler Brown cut his price target to $310 a share from $330 but maintained a Buy rating. He acknowledged the weak demand and commented that he believes that the cost savings initiatives will eventually pay off.
Baird analyst Garrett Holland echoed this sentiment, describing the recent quarter as difficult but still maintaining a Buy rating. He noted that management’s capability to raise prices could further support profitability despite current demand pressures.
FedEx (NYSE:FDX) has a consensus Buy rating by 30 analysts. The average price target of $317.50 represents an upside of 24.69% to the stock’s last price, as of September 20. It ranks 4th on our list of cheap transportation stocks to buy according to analysts.
Longleaf Partners Fund stated the following regarding FedEx Corporation (NYSE:FDX) in its Q2 2024 investor letter:
“FedEx Corporation (NYSE:FDX) – Global logistics company FedEx was the top contributor for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx’s less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.”
Overall FDX ranks 4th on our list of the cheap transportation stocks to buy according to analysts. While we acknowledge the potential of FDX as an investment, our conviction lies in the belief that 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 promising and trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.