During the last few quarters, many industries struggled with shipping, but shipping companies also had their share of troubles.
After the 2020 breakout, FedEx Corporation(NYSE: FDX) has been reporting mixed results, with the latest pressures coming from increasing labor costs.
- Non-GAAP EPS: US$4.59 (miss by US$0.06)
- Revenue: US$23.6b (beat by US$270m)
- Revenue growth: +9.8% Y/Y
FY 2022 guidance
Non-GAAP EPS: US$18.6-19.6 (revision from US$18.25-19.25)
CapEx: US$7b (revision from US$7.2b)
While higher revenues per package partially offset the costs in addition to net fuel benefits, the results still suffered from increasing labor pressures, higher rates for purchased transportation, network inefficiencies, and expansion-related costs.
After a long period of outperforming and a brief period of performing in-line, FedEx is now trailing its biggest competitor, UPS.
After the latest results, institutions scrambled out to update their price targets, revising it downwards:
- Wells Fargo: to US$277 from US$314
- Citi: to US$270 from US$300
- JP Morgan: to US$282 from US$297
- Bank of America: to US$280 from US$297
- Morgan Stanley: to US$250 from US$260
While they kept the ratings (Buy or Equal-Weight), it seems that the institutions are pricing for a bumpy 2022 with more cost pressures to come.
A Look Into the Recent Returns
Over the last three years, FedEx failed to grow earnings per share, which fell 0.5% (annualized).
Given the share price resilience, we don't think the (declining) EPS numbers are a good measure of how the business moves forward. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth looking at other metrics.
At just 1.3%, we doubt the dividend is doing much to prop up the share price. It may well be that FedEx's revenue growth rate of 9.1% over three years has convinced shareholders to believe in a brighter future. If the company is being managed for the long-term good, today's shareholders might be right to hold on.
The company's revenue and earnings (over time) are depicted below (click to see the exact numbers).
Investors well know FedEx, and many analysts have tried to predict future profit levels. So it makes a lot of sense to check out what analysts think FedEx will earn in the future (free analyst consensus estimates)
What About Dividends?
When looking at investment returns, it is vital to consider the difference between total shareholder return (TSR) and share price return.
The TSR incorporates the value of any spin-offs, discounted capital raisings, and any dividends based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a better picture for stocks that pay a dividend. In the case of FedEx, it has had a TSR of 33% for the last 3 years. That exceeds its share price return that we previously mentioned, mainly due to its dividend payments.
A Different Perspective
Investors in FedEx had a tough year, with a total loss of 12% (including dividends), against a market gain of about 4.7%. Yet, it isn't a surprising outcome after the stock rose almost 100% through 2020. It is not strange to see stocks pull back after such parabolic moves.
However, investors are now worried about the future, but their views will differ based on the investment horizon. Short-term speculators might not be patient enough as it looks like there are further cost pressures through 2022. An Investor and Analyst Meeting on June 28 might clear up the outlook for the rest of the year, but that is still 3 months down the road. At a P/E ratio of 12.3, the stock looks undervalued compared to the sector.
It's always interesting to track share price performance over the longer term. But to understand FedEx better, we need to consider many other factors. To that end, you should be aware of the 1 warning sign we've spotted with FedEx.
If you're on the lookout for current opportunities, look at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.
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.