Is FedEx Still an Outperform?

With shares of FedEx Corporation (NYSE:FDX) trading at around $107.33, is FDX an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

The recent “big news” for FedEx is that it will incur a charge between $550 million and $650 million over the next two quarters due to voluntary buyouts for employees. If you’re really pessimistic, then you could make two bear arguments here. One, that’s a hefty charge, and two, this doesn’t signal strong growth for the company.

However, both of those arguments can be easily squashed. First, that might be a hefty charge for most companies, but it’s very manageable for FedEx, especially since it will be spread out over two quarters. Second, this might not signal strong growth compared to the recent past, but FedEx has a knack for doing whatever it takes to make shareholders happy.

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In a way, shareholders come before employees at FedEx. Whether that’s a positive or a negative depends on your situation. The ultimate goal with this buyout is to improve profit by $1.7 billion over the next four years. The reason the words “big news” were in quotations earlier (and in this sentence) is because the stock hasn’t been affected by the news.

A much more important factor here is the continued gain of market share for FedEx due to the decline of the United States Post Office. As far as the “high” stock price for FedEx, it’s not really that high. FedEx is currently trading at 17 times earnings, which is below the industry average of 21.5. And it’s trading at 13 times forward earnings. Margins are good, cash flow is phenomenal, and the vast majority of analysts love the stock.

Let’s take a look at some numbers prior to forming an opinion on the stock…

E = Equity to Debt Ratio Is Strong             

The debt-to-equity ratio for FedEx is strong, and the balance sheet is in positive territory.

Debt-To-Equity

Cash

Long-Term Debt

FDX

0.14

$2.52 Billion

$2.24 Billion

UPS

1.98

$9.03 Billion

$15.07 Billion

 

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T = Technicals on the Stock Chart Are Strong     

FedEx has outperformed the S&P 500 and United Parcel Service (NYSE:UPS) over the past year as well as year-to-date. However, UPS yields 2.70 percent whereas FedEx only yields 0.50 percent.

1 Month

Year-To-Date

1 Year

3 Year

FDX

6.99%

16.44%

15.58%

33.01%

UPS

5.62%

14.96%

12.99%

58.95%

S&P 500

2.48%

6.86%

14.19%

46.34%

 

At $107.33, FedEx is currently trading above all its averages.     

50-Day SMA

97.51

100-Day SMA

93.21

200-Day SMA

91.00

 

E = Earnings Have Been Steady               

Earnings and revenue have consistently improved over the past few years. FedEx is top-tier when it comes to profits.

2008

2009

2010

2011

2012

Revenue ($)in billions

37.95

35.50

34.73

39.30

42.68

Diluted EPS ($)

3.60

0.31

3.76

4.57

6.41

 

When we look at the last quarter on a year-over-year basis, we see an increase in revenue, but a decline in earnings.  

11/2011

2/2012

5/2012

8/2012

11/2012

Revenue ($)in billions

10.59

10.56

11.01

10.79

11.11

Diluted EPS ($)

1.57

1.65

1.73

1.45

1.39

 

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

On the negative side, we see increased fuel costs, global economic uncertainty, and the potential for sequestration cuts in two weeks. On the positive side, FedEx simply continues to increase its market share.

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Conclusion

If you look back at FedEx’s stock performance throughout its history, nearly every single dip has proven to be an excellent buying opportunity. While it’s possible for some downward momentum ahead due to a weak economic environment, FedEx is still a long-term OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.