Despite strong performance early in the year, FedEx Corporation's(NYSE: FDX) has diverged from the broad market and the logistics sector following 2 consecutive earnings misses.
In a way, those were due to high comparisons on the Y/Y basis due to considerable success in 2020, yet the latest earnings surprised the analysts.
- Non-GAAP EPS: US$4.83 (beat by US$0.54)
- GAAP EPS: US$3.88 (US$0.21)
- Revenue: US$23.5b (beat by US$1.08b)
- Capital spending – US$7.2b
- New share buyback program – US$5b
The company stated that the operating income improved due to higher revenue per shipment at all transportation segments. It seems that the effect was enough to overcome the negative impact of the labor market, although they slightly contracted the adjusted operating margins.
Furthermore, the new US$5b share repurchase program represents almost 8% of shares at the current prices.
COO Raj Subramaniam noted that the company stepped up in recruiting, almost doubling the number of applications per week since May. While the trinity of inflation, supply chain issues, and workforce shortage seems to impact a large portion of the market – it appears that FedEx has a workforce under control.
Mr.Subramaniam is optimistic that FedEx is at the center of the fast-growing e-commerce environment. Thus, the company raised the FY22 outlook with adjusted EPS expected in the range of US$20.50-21.50, vs.. a consensus of US$19.63.
Undervalued Compared to the Industry
FedEx certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favor.
Want the complete picture of analyst estimates for the company? Then our free report on FedEx will help you uncover what's on the horizon.
How Is FedEx's Growth Trending?
To justify its P/E ratio, FedEx would need to produce sluggish growth trailing the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 182% last year. EPS has also lifted 6.1% in aggregate from three years ago, primarily thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.
In the future, EPS is anticipated to climb by 8.7% per annum during the coming three years, according to the analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is noticeably more attractive.
With this information, we can see why FedEx is trading at a P/E lower than the market. Many shareholders weren't comfortable holding on while the company potentially saw a less prosperous future.
The Key Takeaway
Our examination of FedEx's analyst forecasts revealed that its inferior earnings outlook contributed to its low P/E. Shareholders accept the low P/E as they concede future earnings probably won't provide any pleasant surprises.
However, the company seems to have control of the labor shortage problem. This is a significant development because FedEx is not unionized (except for its pilots).
Furthermore, it is worth noting that there were 22 downward revisions of the latest earnings and 0 upside. In that case, it wouldn't be surprising that the analysts are underestimating the company's medium-term prospects as well.
In addition, we also found 1 warning sign for FedEx that you need to be mindful of.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.