After reporting better than 4th quarter results on Tuesday, the stock price of FedEx Corp. (FDX) has been on a tear. With this article, I plan to demonstrate that the fundamentals support the current price rise. Moreover, the fundamentals also suggest that it is not too late to take a long-term position in this leading air freight and logistics company.
Yesterday, FedEx reported a surge in quarterly adjusted earnings of $2.53 per share compared to expectations of $1.52 per share. Even though these earnings were almost 50% lower compared to the same period last year due to the coronavirus pandemic, they were obviously well ahead of expectations.
The pandemic really hurt FedEx’s global trade and commercial business-to-business shipments for both express and ground, and additionally weakened the company’s light truckload volumes. These headwinds exasperated the lost Amazon revenue that FedEx intentionally relinquished last year. Nevertheless, 4th quarter report produced signs of progress and the reestablishment of long-term future growth once the current pandemic is over.
However, as Morningstar pointed out, the pandemic has accelerated the broader shift to e-commerce sales for large retailers, which they suggested materially drove up demand for residential business to consumer package deliveries. As a result, ground saw a staggering 25% jump in average daily packages and residential deliveries ballooned to 75% of US sales for the quarter. This contrasted with 56% of sales a year ago. Morningstar also reported that, and I quote “express’ Asia outbound and Europe outbound volumes strengthened in the quarter, as unusually tight industry capacity (limited commercial-airline belly space) is boosting demand for FedEx’s airlift assets.”
With the following slide from FedEx’s earnings presentation you can clearly see the importance of these improvements by examining the relative contribution of express and ground to FedEx’s overall business:
Furthermore, FedEx also presented the following reasons why they believe that they are well-positioned to continue to produce long-term growth: