FedEx: Will Acquisitions Deliver Growth?

05/04/2015 8:00 am EST


Patrick McKeough

Editor, Successful Investor

More businesses are relying on just-in-time delivery to cut their costs and speed up manufacturing. At the same time, online shopping is growing quickly: global e-commerce sales could reach $1.3 trillion by 2017, asserts Patrick McKeough, editor of TSI Network.

In 2013, FedEx (FDX) announced a major restructuring, including job cuts and merging facilities.

FedEx also continues to expand internationally; overseas customers now supply about 30% of its revenue. In the past three years, FedEx has acquired local delivery firms in Brazil, Mexico, France, Poland, and southern Africa for a total of $671 million.

It also received permission to offer package-delivery services inside China, after that country changed its policy on domestic couriers.

To boost its e-commerce expertise, FedEx bought GENCO for $1.4 billion in January 2015. This company processes goods that buyers return for refunds.

It handles more than 600 million returned items each year, GENCO will add $1.6 billion to FedEx’s annual revenue.

In addition, FedEx paid $42 million for Bongo, which helps businesses with cross-border shipments. Bongo’s services include calculating duties, currency conversions, and complying with export laws.

The company also just agreed to buy TNT Express NV, a Netherlands-based courier company that operates throughout Europe, for $4.8 billion.

FedEx’s European operations mainly consist of air-delivery services, so it’s a good fit with TNT’s mainly ground-based operations.

The company expects to earn $8.80 to $8.95 a share for all of fiscal 2015. However, earnings could jump to $11.00 a share in 2016 as FedEx realizes the full benefits of its restructuring and the stock trades at a more reasonable 15.0 times that forecast.

FedEx’s strong balance sheet gives it plenty of room to keep investing in its businesses and we feel FedEx has lots more growth ahead. And its recent cost-cutting plan—combined with falling fuel costs—should spur its earnings for years to come.

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