FedEx: Is It A Buy After Its Recent Pullback?
It’s been hard to find a break in the strong rally that FedEx (FDX) shares have experienced since the COVID-19 pandemic recovery began, yet after a bit of recent weakness during recent weeks, we see shares trading down roughly 7% off of their 52-week high of $319.90 which was posted in late May.
Nobias 3-star rated analyst, the Trefis Team, touched upon the stock’s dip in a recent article, saying, “The stock price of FedEx has seen a 4.3% drop over the last five trading days. There is no company-specific development that warrants a decline in its stock. That said, FDX stock has seen a large rally, rising 2x over the last one year, significantly outperforming the broader markets with the S&P500 up just 31%”
Looking at recent reports by the top rated analysts that Nobias tracks, we agree with the Trefis Team’s statement regarding “no company-specific development that warrants a decline in its stock.” The only report written by a Nobias blue chip analyst came in mid-May, Nobias 4-star rated analyst, STAT Times, posted an article highlighting FedEx’s involvement in the donation of oxygen tanks to to India’s fight against surging COVID-19 cases.
STAT Times noted that “FedEx is a member of the Global Task Force on Pandemic Response, a public-private partnership organized by the US Chamber of Commerce and supported by the Business Roundtable.” The publication said that on May 16th, FedEx helped to facilitate a delivery of “more than 780 oxygen concentrators, over 1.8 million KN95 masks, and medicines and pharmaceutical supplies” to New Delhi, India.
STAT Times continued, saying, “FedEx is also supporting the transportation of over 25,000 oxygen concentrators and converters through an initiative with the U.S.-India Strategic Partnership Forum and other multinational companies. FedEx will continue to work with customers and non-profit organizations including Direct Relief, to deliver life-saving medical supplies to the vulnerable people and communities in India in the days and weeks ahead.” However, a large-cap company playing a role when it comes to international relief should not signal a bearish shift with regard to the stock. These humanitarian moves by the company aren’t going to negatively impact its upcoming fiscal Q4 results (FedEx is scheduled to report its next earnings results on June 24th) and therefore, the news doesn’t appear to be a rational catalyst for a sell-off in FDX shares.
A recent Nasdaq press release regarding FedEx’s upcoming Q4 report said, “According to Zacks Investment Research, based on 8 analysts' forecasts, the consensus EPS forecast for the quarter is $4.98.” During the same quarter one year ago, FedEx generated $2.51/share in earnings, so the $4.98/share expectation by the Wall Street analysts cited by Zacks Investment Research implies 98.4% year-over-year growth.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
This tremendous bottom-line growth leads us to what is probably the most interesting aspect of FedEx’s huge rally over the last year or so. Even after climbing 129.87% during the trailing twelve month, FDX shares have a price-to-earnings multiple that is still in-line with its long-term historical average. From a relative valuation perspective, this implies that FDX is trading within a fair value range.
Over the last 20 years, FedEX’s average blended price-to-earnings ratio is 17.51x. And today, after the stock’s 7% pullback, we see that FDX shares are once again trading in that area, with a blended price-to-earnings ratio of 17.49x. On a forward looking basis, FDX shares are even cheaper. Right now, the consensus analyst estimate for fiscal 2021’s earnings-per-share growth rate is 89%. However, looking ahead to fiscal 2022, analysts are calling for earnings-per-share of $20.65, which equates to a 15% year-over-year growth rate relative to the current 2021 expectation.
At today’s $296.09 share price, the 2022 consensus estimate points towards a 14.3x forward multiple. This is well below the aforementioned 17.5x long-term average. Looking at the Nobias 4 and 5-star rated Wall Street analysts that our algorithm tracks, we see 4 different price target updates published since the start of May. Since the start of May, we see 4 “Buy” opinions, 1 “Neutral” opinion, and zero sell ratings applied to FDX shares by blue chip Nobias analysts. The average of these 4 price targets is $329.00, which points towards 11.1% upside potential from today’s share price.
Disclosure: Nicholas Ward has no FDX position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.