Should You Pick FedEx Stock At $300 After An Upbeat Q4?

FedEx stock (NYSE: FDX) saw a 15% rise on Wednesday, June 26, after it reported Q4’24 results (fiscal ends in May) better than the street estimates. FDX stock is up 17% year-to-date, compared to -12% returns for its peer – UPS stock (NYSE:UPS). FedEx’s Q4 revenue and earnings largely aligned with our expectations. The company reported revenue of $22.1 billion and adjusted earnings of $5.41 per share, compared to our estimates of $22.2 billion, and $5.40, respectively. This compares with the consensus estimates of $22.0 billion and $5.35, respectively. Not only did FedEx beat earnings, it announced a drop in capital spending, boding well for its stock.

Looking at a slightly longer term, FDX stock has seen around 15% gains from levels of $260 in early January 2021 to around $300 now, vs. an increase of about 45% for the S&P 500 over this period. Overall, the performance of FDX stock with respect to the index has been lackluster. Returns for the stock were 0% in 2021, -33% in 2022, and 46% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that FDX underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could FDX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think FDX stock has a little room for growth, after its recent 15% move. We estimate FedEx’s Valuation to be $318 per share, reflecting just 7% upside from its current levels. Our forecast is based on a 15x forward expected adjusted earnings of $21.00, slightly above the 14x average over the last five years.

FedEx’s Revenue rose 1% y-o-y to $22.1 billion, primarily due to slightly higher yields for both Express and Ground segments. The average daily volume was down 1% for Express but up 1% for the Ground segment. FedEx also saw its adjusted operating margin expand by 40 bps to 8.5% in Q4’24. This clubbed with a 2% decline in average shares outstanding, amid share repurchases, resulted in a 10% rise in the bottom line to $5.41 on an adjusted basis.

Looking forward, FedEx expects a low single-digit rise in total revenues for fiscal 2025. FedEx is in the midst of its $4 billion cost-saving efforts by the end of fiscal 2025. Moving in that direction, it expects its fiscal 2025 capital spending to be $5.2 billion, aligning with the fiscal 2024 levels. It expects its earnings to be in the range of $20 and $22. We forecast the 2025 revenue to be around $90.3 billion, reflecting a 3% y-o-y rise, and adjusted earnings to be $21.00, versus $17.80 in fiscal 2024. While FedEx will likely benefit from its market share gains in parcel delivery and its focus on improving margins, the company faces headwinds from the loss of a large client – United States Postal Service – to UPS.