FedEx (FDX) reported fiscal Q3 2020 results that beat analyst estimates. The package and freight delivery giant earned $1.41 per share (vs. $1.27 est.) and had revenue of $17.5 billion (vs. $16.8 billion est.), notes Jason Clark, value investor and contributing editor to The Prudent Speculator.

Unsurprisingly, the company withdrew its guidance due to COVID-19 uncertainty. While some airlines are on the ropes and some have already gone bust as a result of coronavirus-related restrictions on travel, we think that FedEx will actually benefit from two significant factors.

The first is that, as CEO Frederick Smith says, FDX will be able to pickup slack from the airlines. In regularly scheduled passenger service, there’s often a significant amount of belly cargo that includes packages, U.S. Postal Service mail and other express shipments. Between many markets, the cargo is what makes the route viable, rather than cargo of the passenger variety.

We expect FDX to benefit from the drastic reductions in airline schedules, though we note that American Airlines (AAL) and others are flying passenger equipment empty with bellies full of cargo to maintain some level of airplane utilization, and in some situations collecting much higher fees than normal.

The second factor, perhaps unsurprisingly, is cheap jet fuel. We think that while FDX won’t come out from the coronavirus shutdowns unscathed, the shifting demand, strong balance sheet, modest dividend yield and position as an industry leader are things that will help the company survive.

FDX trades just above 10 times forward earnings and the dividend payment, which was declared on February 14, puts the yield around 2.3%. Our target price for FDX has been cut to $203, but we remain long-term fans of the company and its stock.

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