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…