On Jun 26, 2015, we issued an updated research report on FedEx Corporation FDX – a leading player in the field of global express delivery services.
Earlier in the month, the Memphis, TN-based company delivered disappointing numbers in the fourth quarter of fiscal 2015 (ended May 31), missing estimates for both earnings and revenues. Lower fuel surcharges and adverse foreign currency movements at the FedEx Express division hurt the quarterly results. However, we are not too perturbed by the quarter’s performance as we expect FedEx to perform well going ahead, driven by strong fundamentals.
We are positive on FedEx’s impending acquisition of Dutch company TNT Express TNTEY. The buyout will significantly expand FedEx’s scale of operations, particularly in Europe. In the event of the deal materializing, FedEx will be able to strengthen its position in the lucrative e-commerce business. The expansion of its capabilities will enable the company to compete more effectively with rivals like United Parcel Service Inc. UPS that has substantial European presence. The deal will also offer cost-savings, thereby driving long-term growth. According to a report appearing in the Reuters, EU regulators will render their decision on the deal by Aug 3.
Furthermore, the three-year deal with UEFA inked in May 2015 to sponsor one of the largest football events, the UEFA Europa League, is a major positive in our view. This too can be deemed another move by the company to expand its presence in Europe.
To add to the slew of positives, FedEx has a strong balance sheet. Earlier in the month, the company raised its quarterly dividend by 25% to 25 cents (or $1.00 annually) from 20 cents a share (80 cents annually) paid earlier. The new dividend, which has been approved by the company’s board of directors, will be paid on Jul 2, 2015 to stockholders on record as of Jun 15. We are impressed by the company’s efforts to boost shareholders’ wealth through such dividend hikes.
FedEx projects fiscal 2016 earnings per share in the band of $10.60 to $11.10. We expect the company to achieve its guidance driven by a strong product portfolio. Consequently, the current Zacks Consensus Estimate of $10.83 lies within the guidance range.
Zacks Rank
FedEx currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space is Atlas Air Worldwide Holdings, Inc. AAWW sporting a Zacks Rank #1 (Strong Buy).
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