VALUATION HIGHLIGHTS
- FedEx Ground constitutes 52% of the Trefis price estimate for FedEx's stock.
- FedEx Express constitute 40% of the Trefis price estimate for FedEx's stock.
WHAT HAS CHANGED?
- FDX Stock Performance In Recent Years
The changes in FDX stock over the recent years has been far from consistent. Returns for the stock were 1% in 2021, -32% in 2022, 49% in 2023, and 13% in 2024.
In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that FDX underperformed the S&P in 2021, 2022 and 2024.
- Q3 Fiscal 2025 Performance
FedEx reported downbeat results for Q3 2025. The company saw its revenue rise by 2.3% y-o-y to $22.2 billion. This can be attributed to a marginal rise in volumes. It reported earnings of $4.51 per share, compared to $3.86 it reported in the prior-year quarter.
- Global Slowdown And Trade Wars
FedEx, a global delivery and logistics company, did face some headwinds in fiscal 2020 from an economic slowdown. However, early 2020 turned out to be even more concerning, given the spread of Covid-19, and it resulted in FDX stock price dropping over 45% from its Feb 2020 highs of over $160 to lows seen of $90 in March 2020.
Post-March 2020, the stock has seen stellar growth, led by better-than-expected results amid an increase in FedEx's ground shipments owing to the pandemic.
However, of late, the company is facing headwinds from rising costs, impacting its overall margins. Also, the shipment volumes are now seeing a decline after the pent-up demand during the pandemic. These factors weighed on its stock price.
- High Costs Affect Profitability
Besides the trade war and pandemic worries, high costs are hurting the company's bottom-line growth. With FedEx investing substantially in facility upgrades at its key divisions, capital expenses are rising. Such steep costs might hit FedEx's bottom line in the near term. Notably, the capital outlay was $5.2 billion in fiscal 2024, and the company expects it to be $4.9 billion in fiscal 2025.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of FedEx that present opportunities for upside or downside to the current Trefis price estimate.
FedEx EBITDA Margin
- FedEx EBITDA Margin: FedEx EBITDA Margins declined from around 20% levels in fiscal 2018 to 16% in fiscal 2024, partly due to lower fuel surcharges and unfavorable exchange rates. Higher labor costs are also affecting operating profits. That said, if fuel costs were to decline in the near term, it could positively impact margins. If FedEx margins increase to the north of 23% (as compared to our current estimate of 20%) over our forecast period, this will lead to a >20% upside in our valuation.
BUSINESS SUMMARY
FedEx Corp. (NYSE:FDX) operates as a holding company, managing a diverse portfolio of subsidiaries that deliver transportation, e-commerce, and business solutions under the FedEx brand. Its main operating units include Federal Express Corporation (FedEx Express), the world's largest express transportation provider; FedEx Ground Package System, Inc. (FedEx Ground), a leading ground-based small-package delivery service; and the FedEx Freight LTL Group, encompassing FedEx Freight and FedEx National LTL. These entities represent FedEx's key service areas and, together with FedEx Corporate Services, Inc. (FedEx Services), constitute its reportable segments. FedEx Services provides crucial support in areas like sales, marketing, IT, and customer service to the transportation segments. Additionally, FedEx Services offers retail access to FedEx Express and FedEx Ground shipping through FedEx Office and Print Services, Inc. (FedEx Office).
SOURCES OF VALUE
The Express Package and the Ground Package divisions account for approximately 40% and 52% of FedEx's value per Trefis estimates. Both — the Ground Package Division and The Express Package Division are valuable to FedEx for the following reasons:
Highest Average Daily Package Volume for the Ground Division
The Ground Package Division is the second-largest division of FedEx in terms of volume and accounts for over 50% of the company's valuation.
Accelerating economic growth in the U.S. drove volume growth for the division, particularly its B2C business. E-commerce growth in the wake of the pandemic also aided this growth. That said, the volume has declined in recent years, reflecting the impact of the opening up of the economies as well as a slowdown in overall economic growth.
Highest composite package yields for the Express Package division
Express Deliveries are FedEx's core strength and boast very high composite package yields compared to FedEx Freight or the FedEx Ground division. FedEx Express Package's composite package yield is much higher than that for FedEx Freight and FedEx Ground.
The growing eCommerce industry is the primary reason behind the increased yields in Express Package. With robust growth in B2C eCommerce sales, we believe FedEx's Express Package division will continue to grow.
KEY TRENDS
GDP growth
Global GDP growth saw a rebound gradually after the Covid-19 impact, with global GDP declining over 4% in 2020. It rose nearly 6% in 2021, and it saw 3% growth in 2022, 2023, and 2024. Rising global GDP growth will drive steady growth in shipments and, in turn, revenues for FedEx going forward.
Growing U.S. e-commerce industry
The growing e-commerce industry has been driving volumes at FedEx's U.S. Domestic Package segment. More people are shifting to e-commerce channels to meet their needs. Not only is online shopping more convenient, but it has also become more accessible due to the increasing smartphone and tablet penetration, supported by higher internet penetration. Many brick-and-mortar retailers have rolled out online shopping portals to cater to the growing online retail shopping customer base. Deals and discounts on online shopping also encourage customers to purchase via websites rather than traditional stores.
E-commerce sales directly impact FedEx's package volume, since many online retailers employ FedEx's services to offer their customers timely and economical delivery of products. With the North American e-commerce market estimated to grow steadily going forward, we believe FedEx will see increasing volumes in the coming years.
Demand for cheaper shipping options and higher competition from sea-borne shipping
There has been a clear trend of customers shifting from premium services to slower or deferred products while seeking lower shipping expenses. The air freight carriers are accordingly facing higher market share competition with seaborne shipping options that offer lower rates.
