FedEx stock (NYSE: FDX) dropped 7% on February 3 amid concerns over new tariffs on Canada, Mexico, and China impacting logistics demand. While the tariffs were temporarily suspended for one month, the uncertainty may continue affecting delivery companies’ outlook. As an aside, is there room for growth? See: Should You Pick PEP Stock At $145?
Looking at a slightly longer period, FDX stock is up 49% since the beginning of 2023. This can be attributed to a solid 81% rise in the company’s P/E ratio from 8.1x trailing earnings to 14.6x now, partly offset by an 18% fall in earnings per share. If you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
FedEx experienced a notable financial downturn, with earnings suffering from both revenue decline and margin compression. FedEx’s revenue fell by 7% from $93.5 billion in 2022 to $87.4 billion in the trailing twelve months. This decline stems from several factors: decreased e-commerce activity post-pandemic peak, ongoing inflationary pressures, and weakened international shipping demand.
Profitability metrics also deteriorated during this period. The operating margin contracted by 30 basis points, falling from 7.0% to 6.7%. More significantly, the adjusted net income margin saw a steeper decline of 110 basis points, representing a 19% drop. The combined impact of lower revenue and compressed margins led to earnings per share decreasing from $20.61 in 2022 to $16.92 in the most recent twelve-month period.
Despite the weak financial performance, investors have assigned a higher valuation multiple for FDX stock. This can partly be attributed to the company’s plans to separate its freight division through a spin-off, a strategic move that investors have been anticipating. The separation allows FedEx to sharpen its focus on its core package delivery operations while potentially enhancing overall profitability. This strategic restructuring is expected to create additional value for shareholders.
Now, as trade tensions loom with possible new tariffs, what can investors expect from FedEx stock? We currently estimate FedEx’s Valuation to be $315 per share, reflecting over 25% upside from here. FedEx stock’s elevated valuation multiple appears warranted, given the expected rise in profitability. For perspective, FedEx is expected to see its revenue rise around 5% over the next two years, but its earnings are estimated to surge over 28% during this period.
While trade conflicts could dampen growth prospects, FedEx’s operational improvements position it well for enhanced profitability. But, if you are looking for less volatility, consider the Trefis High Quality Portfolio, with a collection of 30 stocks, which has comfortably outperformed the S&P 500 over the last four-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
While FDX stock looks like it has ample room for growth, it is helpful to see how FedEx’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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