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Here's Why You Should Retain FedEx (FDX) Stock for Now

Solid cash position and surge in e-commerce demand aid FedEx (FDX) stock. However, rising capex is a headwind.

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This story originally appeared on Zacks

FedEx Corporation FDX shares have rallied 21.8% in the past year compared with 17.9% growth of the industry it belongs to.

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The company’s earnings are anticipated to register growth of 17% in fiscal 2022 from fiscal 2021’s reported figure. Moreover, sales estimates are expected to register growth of 6.5% in fiscal 2022 from fiscal 2021 actuals. FedEx has a trailing four-quarter earnings surprise of 29.9%, on average (including one miss and three beat).

Key Growth Drivers

FedEx's liquidity position is solid. The company's current ratio, a measure of liquidity, was pegged at 1.51 at the end of fourth-quarter fiscal 2021. The projection is higher than the industry's average of 1.33. This liquidity ratio measures a company's ability to pay short-term obligations.

As witnessed in the past few quarters, FedEx's fourth-quarter fiscal 2021 results were aided by surge in e-commerce demand. E-commerce, which is integral to our daily lives in today’s fast-paced world, is witnessing higher demand amid the pandemic-induced social-distancing protocols and quarantines. The residential delivery volume growth, driven by the phenomenal rise in e-commerce demand in the current scenario, is a huge plus. In fiscal 2021, total U.S. domestic residential package volume mix was 67% compared with 62% a year ago. Upbeat e-commerce demand is likely to have aided the company's first-quarter fiscal 2022 (detailed results to be out on Sep 21) performance as well.

Primary Concern

The company expects capital expenditures for fiscal 2022 to be $7.2 billion, higher than $5.88 billion incurred in fiscal 2021. The capital spending will primarily be aimed toward capacity expansion, fleet and facility modernization as well as increased automation. The increase in capital spending in fiscal 2022 is likely to dent profit margins.

Zacks Rank & Stocks to Consider

FedEx currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. KNX, Landstar System, Inc. LSTR and Herc Holdings Inc. HRI. Knight-Swift and Landstar carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 49.2%, respectively.

 



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FedEx Corporation (FDX): Free Stock Analysis Report

 

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