Is FedEx a Good Defensive Play?

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With shares of FedEx Corporation (NYSE:FDX) trading at around $97.96, 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

On the positive side, FedEx is expanding higher margin operations, it’s undergoing a strategic cost-cutting program, and revenue has been solid. However, there are many negatives as well, which include:

  • Weakness in international freight markets
  • Industry overcapacity
  • Consumers opting for cheaper and slower transit services
  • Decreasing capacity to and from Asia (could be a positive, but limits growth potential)
  • Operating income down 28 percent year-over-year
  • Operating margin down 7.7 percent year-over-year
  • Net income down 31 percent year-over-year
  • FY2013 diluted EPS expectation of $6.00 to $6.20 (strong, but would be a decline)

It should be noted that some of these negatives relate to business realignment.

The earnings report is old news, but not many people read the specifics. We’ll get a little specific without going overboard. These are just some simple numbers that offer a clearer view of the situation.

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FedEx Ground

  • Revenue increased 11 percent year-over-year
  • Operating income of $467 million, up from $465 million last year
  • Operating margin of 17 percent, down from 18.8 percent last year

FedEx Freight

  • Revenue of $1.24 billion, up from $1.23 billion last year
  • Operating income $4 million, compared to $1 million loss last year
  • Operating margin of 0.3 percent, up from (0.1 percent) last year

FedEx Express

  • Revenue increased 2 percent year-over-year
  • Operating income down 66 percent year-over-year
  • Operating margin at 1.8 percent, down from 5.3 percent last year

Now let’s take a look at some comparative numbers. The chart below compares basic fundamentals for FedEx, United Parcel Service (NYSE:UPS), and Expeditors International of Washington (NASDAQ:EXPD). FedEx has a market cap of $30.98 billion, UPS has a market cap of $80.67 billion, and Expeditors International has a market cap of $7.63 billion.

FDX

UPS

EXPD

Trailing   P/E

17.12

101.93

23.52

Forward   P/E

12.93

14.92

18.10

Profit   Margin

4.12%

1.49%

5.57%

ROE

11.06%

2.25%

16.47%

Operating   Cash Flow

$4.79 Billion

$7.22 Billion

$370.13 Million

Dividend   Yield

0.60%

3.00%

1.50%

Short   Position

1.70%

1.90%

N/A

 

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

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