Down the Earnings Lane (NYSE: FDX) recently disclosed its Q3’24 outcomes (fiscal closure in May), witnessing a revenue shortfall alongside earnings surpassing our anticipations. The figures stood at $21.7 billion for revenue and $3.86 per share for adjusted earnings, diverging from our projections of $22.0 billion and $3.58, correspondingly. FedEx not only outperformed in earnings but uplifted its forecast while declaring a fresh $5 billion stock repurchase scheme, potentially painting a favorable picture for its equity. As bright as a late summer bloom, FDX stock is reveling in a 13% surge in after-hours trading.
The Bumpy Road of Stock Performance
Gazing at a broader horizon, FDX stock has trod a path of marginal shifts, drifting slightly from $260 levels in early January 2021 to approximately $265 presently, as opposed to the S&P 500’s 40% ascension over a similar three-year span. In the grand scheme of comparisons, the stock’s performance vis-à-vis the index has been tepid. Returns for FDX stock stood still at 0% in 2021, plummeted by 33% in 2022, and surged by 46% in 2023. In contrast, the S&P 500 exhibited returns of 27% in 2021, a dip of 19% in 2022, and a rise of 24% in 2023 — implying that FDX lagged behind the S&P in 2021 and 2022, akin to a ship anchored in a bustling harbor.
Challenging the Titans
Surpassing the S&P 500 consistently — in times both prosperous and bleak — has been an uphill climb for individual stocks in recent years, including stalwarts in the Industrial sector like GE, CAT, and UNP, as well as megacap luminaries such as GOOG, TSLA, and MSFT. In contrast, the Trefis High-Quality (HQ) Portfolio, boasting 30 stocks, has emerged victorious over the index each passing year during this epoch. What sets them apart? The HQ Portfolio stocks collectively delivered superior yields with subdued risks compared to the benchmark index — a smoother journey, evident in the HQ Portfolio’s performance metrics.
A Glimmer of Hope
In the prevailing ambiguous macroeconomic backdrop characterized by soaring oil prices and escalated interest rates, could FDX be staring at a re-enactment of its 2021 and 2022 underperformance vis-à-vis the S&P over the coming 12 months? Or is it poised for a robust leap? From a valuation lens, and assuming the stock unfurls around $300 today, it appears adequately valued. Our valuation pegs FedEx at $294 per share, grounded on a 16x forward anticipated adjusted earnings of $17.85, marginally trumping the five-year average of 14x. Nonetheless, the P/E ratio dwindles to just under 14x if we mull over fiscal 2025’s anticipated earnings of $21.47.
The Fabric of Revenue
FedEx’s revenue dwindled by 2% year-over-year to $21.7 billion, primarily spurred by reduced average volumes. The top-line figures fell marginally shy of our presumptions. While we predicted a slight uptick in overall volume, the Express and Ground segments witnessed a 1.1% decrease in daily package volumes year-over-year. Additionally, FedEx observed its adjusted operating margin balloon by 90 basis points to 6.2% in Q3’24. Coupled with a 1% dip in average outstanding shares, owing to share repurchases, this engendered a 13% surge in the bottom line to $3.86 on an adjusted basis.
Charting the Course Ahead
Moving forward, FedEx anticipates a low single-digit dip in total revenues for fiscal 2024. The company has narrowed its earnings projection to now range between $17.25 and $18.25, as against its former guidance spanning $17.00 and $18.50. We prognosticate 2024’s revenue to hover around $88.3 billion, reflecting a 2% year-over-year contraction, with adjusted earnings projected to settle at $17.85, in contrast to $14.96 in fiscal 2023. While FedEx is likely to reap the rewards of its parcel delivery market share gains and focus on enhancing margins, around $300 levels, we surmise that the positives have largely been factored in.
A Peek at the Rearview Mirror
While FDX stock appears poised for further growth, expected to materialize in today’s trading session, it would be beneficial to examine how FedEx’s counterparts fare across pivotal metrics. For such comparative insights stretching across diverse sectors, a visit to Peer Comparisons will furnish you with a treasure trove of valuable intel.
The Vanguard of Returns
| Returns | Mar 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| FedEx Return | 6% | 5% | 42% |
| S&P 500 Return | 3% | 10% | 133% |
| Trefis Reinforced Value Portfolio | 2% | 6% | 656% |
[1] Returns as of 3/22/2024
[2] Cumulative total returns since the end of 2016
Invest with Trefis Market-Beating Portfolios. See all Trefis Price Estimates.
The viewpoints and opinions articulated herein reflect the author’s perspective and do not necessarily mirror those of Nasdaq, Inc.
