Should You Pick FedEx Stock At $300 After Q3 Earnings Beat?

FedEx stock (NYSE: FDX) recently reported its Q3’24 results (fiscal ends in May), with revenue falling short and earnings exceeding our expectations. The company reported revenue of $21.7 billion and adjusted earnings of $3.86 per share, compared to our estimates of $22.0 billion, and $3.58, respectively. Not only did FedEx FDX beat earnings, it raised its outlook and announced a new $5 billion share buyback plan, boding well for its stock. FDX stock was up 7% in Friday's trading session.

Looking at a slightly longer term, FDX stock has seen little change, moving slightly from levels of $260 in early January 2021 to around $285 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. Overall, the performance of FDX stock with respect to the index has been lackluster. Returns for the stock were 0% in 2021, -33% in 2022, and 46% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that FDX underperformed the S&P in 2021 and 2022.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could FDX face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, FedEx stock looks appropriately priced. We estimate FedEx’s Valuation to be $294 per share, based on a 16x forward expected adjusted earnings of $17.85, slightly above the 14x average over the last five years. However, the P/E falls to a little under 14x if we consider fiscal 2025 expected earnings of $21.47.

FedEx’s Revenue fell 2% y-o-y to $21.7 billion, primarily due to lower average volumes. The overall top-line fell slightly short of our estimates. We expected a slight uptick in overall volume, but the Express and Ground average daily package volume declined 1.1% y-o-y. FedEx also saw its adjusted operating margin expand by 90 bps to 6.2% in Q3’24. This clubbed with a 1% decline in average shares outstanding, amid share repurchases, resulted in a 13% rise in the bottom line to $3.86 on an adjusted basis.

Looking forward, FedEx expects a low single-digit decline in total revenues for fiscal 2024. It narrowed its earnings outlook to now be in the range of $17.25 and $18.25, compared to its prior guidance of $17.00 and $18.50 range. We forecast the 2024 revenue to be around $88.3 billion, reflecting a 2% y-o-y decline, and adjusted earnings to be $17.85, versus $14.96 in fiscal 2023. While FedEx will likely benefit from its market share gains in parcel delivery and its focus on improving margins, at around $285 levels, we think the positives are largely priced in.

While FDX stock looks like appropriately priced, it is helpful to see how FedEx’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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