FedEx, a key player in the industrial sector alongside UPS, plays a crucial role in carrying and delivering a significant portion of the US GDP. With the rise of e-commerce, FedEx’s importance in the business world has only grown over the years. Recent developments within the company, such as Fred Smith stepping down as CEO and Raj Subramaniam taking over, indicate potential changes in FedEx’s operations. One major focus for FedEx is the implementation of AI technology to drive cost savings, particularly in data-heavy industries.
Another significant initiative by FedEx is the “Drive” program, aimed at removing $4 billion from the company’s cost structure. This restructuring effort is crucial for FedEx Express, which has recently faced challenges such as losing some USPS business. The goal is to streamline operations and improve profitability, ultimately leading to a better operating margin for the company.
In the upcoming earnings report for fiscal Q1 ’25, analysts are expecting revenue of $21.9 billion, marking the second consecutive quarter of year-over-year growth of 1%. Operating income is projected to reach $1.67 billion, with a 5% increase compared to the previous year. The earnings per share (EPS) forecast stands at $4.83, showing a 6% growth year-over-year. These numbers reflect the ongoing efforts by FedEx to enhance its financial performance.
In the previous quarter, FedEx achieved a consolidated operating margin of 8.6%. Ground operations showed positive results with volume and yield gains, while Express experienced a decline in margin over the past eight quarters. On the other hand, Freight operations maintained a strong margin of 21%, performing well post-pandemic. These metrics indicate the varying performance across different segments of FedEx’s business.
From a valuation perspective, FedEx is considered a cheap stock with a 3-year average multiple of 12x. Despite the company’s expected EPS growth of 15% over the next three years, the stock remains undervalued compared to its growth potential. The implementation of the FedEx Drive program has significantly increased free cash flow, with trailing twelve-month averages showing substantial growth over different time periods.
Looking ahead, investors are advised to monitor FedEx’s stock performance closely. With the stock trading below its previous high of $320 in June ’21, there is potential for further upside. If the stock surpasses this level, the next target could be around $350. Additionally, FedEx’s price-to-sales ratio remains below 1x, indicating room for further appreciation in the stock price.
In conclusion, FedEx’s ongoing initiatives to streamline operations, improve profitability, and enhance efficiency are expected to drive future growth. With a focus on cost rationalization and strategic restructuring, FedEx aims to achieve sustainable operating margins and peak performance across its business segments. Investors should consider the company’s strong fundamentals, solid management, and potential for long-term growth when evaluating investment opportunities in the industrial sector.