FedEx: Delivering the Goods

11/03/2016 8:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

With the market recently pivoting toward economically sensitive stocks, this pick is situated nicely to outperform the broad market over the next 12 months, suggests Richard Moroney, editor of Dow Theory Forecasts.

It’s rare that you come across a stock that ticks virtually all of the most important boxes. FedEx (FDX) is such a stock:

* Earnings and revenue beats
* Rising earnings estimates
* Decent organic revenue growth
* Profit-guidance raise
* Attractive valuation
* Strong Quadrix numbers
* Price momentum
* Sharply rising dividend stream
* Pricing power

Delivering the goods FedEx’s network covers more than 220 countries, linking more than 99% of the world’s gross domestic product.

FedEx Express (45% of total revenue) provides time-sensitive, air-ground express service worldwide, delivering more than 4 million packages a day.

FedEx Ground (29%) provides business-to-business and residential services, delivering more than 7.5 million packages daily via more than 50,000 vehicles.

FedEx Freight (11%) provides less-than- truckload shipping. FedEx Services (3%) provides solutions for global supply chains, e-commerce, and other shipping logistics.

Both per-share earnings and revenue increased 20% in the August quarter to surpass the consensus.

FedEx is optimistic about the current fiscal year, raising its earnings-growth guidance to 10% to 14% excluding one-time items.

The results should benefit from continued volume growth, driven partly by growth in e-commerce, as well as higher prices.

Risk factors going forward are primarily threefold: the US and global economies regress, reducing demand; Amazon (AMZN), a major client, builds out its own delivery network; or political rhetoric concerning tightening or eliminating trade deals becomes a reality.

Given valuation — less than 15 times the company’s low-end earnings guidance of $11.85 per share for fiscal 2017 — the shares seem to be adequately discounting these risks. FedEx is a long-term buy.

Subscribe to Dow Theory Forecasts here…

By Richard Moroney, Editor of Dow Theory Forecasts

Related Articles on STOCKS