Beyond operational enhancements, FedEx remains cheaply valued

FedEx has demonstrated resilience and adaptability in a dynamic market. Revenue challenges including a recent 2.8% decline have been primarily attributed to changing consumer spending habits.

However, a recently announced restructuring plan is set to streamline operations,

The stock trades at 14.0 times the company’s 2024 earnings forecast.

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FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages in the U.S. and 220 other countries.

FedEx has three main businesses: FedEx Express (mainly air freight), supplying 50% of its revenue and 17% of its earnings in fiscal 2023; FedEx Ground transportation service (39% of revenue, 51% of earnings); and FedEx Freight, mainly less-than-truckload (LTL) shipping (11%, 32%).

Growth Stocks: Ongoing cost cutting should add significantly to earnings for FedEx

FedEx recently announced a new restructuring plan, which includes merging its FedEx Express (air freight), FedEx Ground, FedEx Services and other smaller operating companies into a single division. These moves should cut $4.0 billion from its annual costs by the end of fiscal 2025.

The re-opening of stores following pandemic lockdowns has hurt the volume of online shopping parcels. That’s partly why revenue in the company’s fiscal 2024 second quarter, ended November 30, 2023, fell 2.8%, to $22.17 billion from $22.81 billion a year earlier. However, savings from the cost-cutting plan lifted earnings by 25.5%, to $3.99 a share from $3.18.

FedEx continues to make progress with its plan.

The company permanently retired 18 older planes in fiscal 2023 and plans to remove a further 29 from service in 2024. FedEx is also investing in new fuel-efficient aircraft and upgrades to its major air freight processing hubs in Memphis and Indianapolis.

And merging the air and ground divisions into a single operating company should be complete by June 2024; the LTL business will continue to operate separately. Eliminating overlapping functions should boost the efficiency of its pickup-and-delivery service by between 15% and 20%.

The company’s earnings per share for fiscal 2024 should improve about 18% to $17.61, and the stock trades at a reasonable 14.0 times that estimate.

The company is also returning more cash to shareholders. Starting with the July 2023 payment, FedEx raised the quarterly dividend by 9.6%, to $1.26 a share from $1.15. The new annual rate of $5.04 yields 2.0%. What’s more, FedEx expects to buy back another $1.5 billion of its shares in by February 29, 2024.

Recommendation in Wall Street Stock Forecaster: FedEx Corp. is a buy.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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