What’s Happening With FedEx Stock?

December 20th, 2024 by Trefis Team
+3.28%
Upside
276
Market
285
Trefis
FDX: FedEx logo
FDX
FedEx

FedEx stock (NYSE: FDX) is expected to see higher levels after it announced the spin-off of its freight business. While this move was awaited, it bodes well for the stock, unlocking shareholder value. The division is estimated to be worth over $30 billion. [1] Although FedEx’s freight business accounted for only 10% of the company’s total revenues in fiscal 2024, it was far more profitable, with 20% operating margin, versus 2% for Express and 12% for the Ground segment.

The spin-off will help FedEx focus on the core delivery business and improve its profitability. While FDX stock may see higher levels in the near term, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

FDX stock has fared well in recent years, with 66% gains since early 2023. This can be attributed to a 2x rise in the company’s trailing P/E ratio from 8x to 16x; partly offset by an 18% fall in adjusted earnings from $20.61 in 2022 to $16.92 now. The earnings decline is a result of lower revenues and margin contraction. FedEx’s revenue declined 6% from $93.5 billion in 2022 to $87.6 billion now, due to lower e-commerce volumes compared to the peak during the pandemic, rising costs pushing customers to cheaper alternatives, and a reduced international shipping demand, among other factors. The company’s adjusted net margin declined by 110 bps over this period due to higher operational costs, including labor and rentals.

Notably, the increase in FDX stock over the recent years has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 1% in 2021, -32% in 2022, and 49% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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 around rate cuts and the changes in the White House, 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? After today’s expected rise following the spin-off development, we think FDX stock will be fairly priced. At levels of around $285, FDX stock trades at 17x trailing adjusted earnings of $16.92 per share, versus the stock’s average P/E ratio of 16x over the last two years. Now, with the freight business spin-off, a rise in valuation multiple for FDX seems justified, and the stock may see higher levels. We currently estimate FedEx’s Valuation to be $285 per share, aligning with its current levels. We will soon update our model to reflect the impact of the spin-off.
Relevant Articles
  1. What’s Next For FedEx Stock After A Dismal Q1?
  2. What To Expect From FedEx’s Q1
  3. Should You Pick FedEx Stock At $300 After An Upbeat Q4?
  4. Should You Pick FedEx Stock At $250 Ahead of Q4 Results?
  5. Should You Pick FedEx Stock At $300 After Q3 Earnings Beat?
  6. What To Expect From FedEx’s Q3 After 20% Gains In A Year?

While FDX stock looks fairly priced, it is helpful to see how FedEx’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons. 

Returns Dec 2024
MTD [1]		 2024
YTD [1]		 2017-24
Total [2]
 FDX Return -9% 10% 51%
 S&P 500 Return -3% 23% 162%
 Trefis Reinforced Value Portfolio -8% 14% 749%

[1] Returns as of 12/20/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. FedEx to spin off freight unit, Maria Heeter and Gregory Meyer, Dec 20, 2024, The Financial Times [↩]