Executive Summary
Analyst Name and Company: Zachary Sherman, University of Memphis Investor Inc.
Firm Being Analyzed: FedEx Corporation (FDX)
Price on Report Date: $ 233.09 on July 29th, 2022
Forecast Horizon: 1 year
Recommendation: Buy
Target Forecasted Price: $ 311.38
Highlights:
• FedEx Corporation has three main operating companies: FedEx Express, FedEx Ground,
FedEx Freight; with multiple other companies under the corporation’s umbrella
• One of the largest transportation companies in the world
• New management including the CEO of FedEx Corp and the CEOs of each operating
company
• New long-term strategy of more efficiently utilizing assets and profitably growing
• Acquisitions in recent years have positioned FedEx to capitalize and expand in different
markets and industries, including Europe and Ecommerce
• FedEx holds the most assets of any company in the courier, express, and parcel industry
• Strong competition will require FedEx to rapidly adapt to the changing times
• Vulnerable to shifts in macro-economic conditions and consumer sentiment
• Poor profitability ratios, relative to the industry, have degraded the stock price for FDX
• The stock price of FedEx is well below the forecasted fair value price, while the
fundamentals of the corporation have become increasingly strong
Summary of Analysis:
• Market Cap: $ 60.57 Billion
• Cash: $ 6.90 Billion
• Previous FY Revenue: $ 93.51 Billion
• Operating Cash Flow: $ 9.83 Billion
• Free Cash Flow: $ 3.07 Billion
• Dividend: $4.60 Per Common Share
• EPS: $14.54
Qualitative Analysis
1. Company Profile
Products and Services
FedEx Corp provides transportation, e-commerce, and business solutions across a variety of
mediums, connecting 220 countries and territories by its vast networki. The major operating
companies include FedEx Express, Ground, and Freight. The variety of services offered by
FedEx make it a standout in the transportation industry as they can provide a solution for any
type of shipping required.
Target Audience
FedEx Corporation’s audience and reach is broad, but its target audience is small to medium size
businesses connecting to their customers. There will continue to be new small and medium size
businesses that require transportation solutions, in some form, that FDX can provide.
Additionally, small to medium size customers usually do not have the shipping volume often
required to negotiate rates with FedEx and this allows them to ensure that the small to medium
customers are profitable as they’re integrated into the network. As well, the current make up of
FedEx’s customers consist of extremely large partners such as the United States Postal Services,
accounting for over $2 billion in revenue during FY19v. Additionally, FDX appears to have a
diversified clientele, with large customers such as Amazon.com accounting for less than 2% of
its revenueiv.
Distribution of Service and Types
The FedEx Corporation consists of multiple segments: Express, Ground, Freight, Services,
Logistics, Office, and Dataworksvi. Express, Ground, and Freight make up the majority of
revenue with 49%, 35%, and 10% respectivelyvii.
FedEx Express consists of a wide variety of services and connects over 99% of global GDP.
Express provides rapid and time sensitive deliveries, between its air and ground network. The
international infrastructure allows for Express to connect the world between business to business
and business to consumer shipments. Additionally, Express contains 697 aircrafts and over
87,000 motorized vehiclesviii.
FedEx Ground is a ground network specifically for North America, able to deliver to 100% of
US residences. Ground focuses on high volume, low weight, less time sensitive business to
consumer packagesvi.
FedEx Freight is a less than truckload (LTL) provider for North America and Mexico. Freight
provides a priority and economy service that allow for flexibility in its business to business
shipments. Freight also provides a service called FedEx Freight Direct to meet the needs of the
growing e-commerce market for delivery of heavy, bulky products to or through the door for
residences and businessesvi.
Other
FedEx Services, Logistics, Office, and Dataworks support the FedEx corporation network in
various ways. With many sectors of the business overlapping, the aforementioned segments can
allow for further integration and optimization between operating companies, blurring the lines
between the different segments. With continued acquisitions over the years such as, ShopRunner,
GENCO, and Kinko’s, FedEx Corp has positioned itself to thoroughly support its operations and
expansion. As it stands, the operating companies are managed separately while falling under the
FedEx Corp umbrella.
FedEx corporation promoted Raj Subramaniam to be president and CEO of FedEx Corporation
at the beginning of FY23. The transition from Fred Smith, the founder of the company, to Raj is
a welcomed change. Fred has mentored Raj and after 50 years of running the corporation, chosen
someone that has the capability and vision to push FedEx to new heights.
2. Industry Overview
The logistics industry, more specifically, the U.S. courier, express, and parcel market is
comprised of three main companies in the US: UPS, FedEx, and USPS. These companies
provide logistics and courier services to the entire country and have seen a significant increase in
volume over the past few years; over 37% growth in volume during 2020x. Between Covid-19
and a shift in consumer behavior, the e-commerce market has heavily contributed to the rapid
growth of this industry. Accordingly, it is estimated that revenue will continue to grow by 5%
annually in North Americax. While the three main courier companies in the US have positioned
themselves as leaders of the industry, Amazon and its logistics subsidiary have become an
unignorable competitor. While not primarily a courier, express, and parcel company, Amazon’s
e-commerce business has surpassed FedEx in number of packages delivered and is projected to
surpass UPS and USPS in 2022 as wellxi. The industry is extremely capital intensive and requires
a vast logistics network to operate efficiently. Amazon, being one of the largest companies in the
world and privy to large amounts of capital, has grown into this logistics role to become less
reliant on other businesses that impact their shipping costs and thus their bottom line.
3. SWOT Analysis
Strengths
• Vast logistics network capable of connecting almost any business to the rest of the world
• Diversified products providing options for customers requiring various logistic needs
• Most assets held by a company in the couriers, express, and parcel industry
• Established brand and reputation for quality service
Weaknesses
• Poor asset utilization
• Siloed operating companies run by separate management with service overlap
• Reliant on fuel and thus susceptible to volatility in energy prices
• Demand for service is vulnerable to broader market conditions as it is a luxury good in
the B2C market
Opportunities
• Ecommerce platform and establishing a position in a relatively lopsided industry;
acquisition of ShopRunner
• Integration of operating companies to reduce cost and inefficiencies
• New leadership with a renewed focus on utilizing assets and reducing wastefulness
• Establishing foothold on the European market as consumer behavior begins adapting to
parcel delivery services
Threats
• Supply chain issues and inefficiencies
• Amazon leading e-commerce and developing a logistics network
• Inability to rapidly evolve the business to meet consumer demands
• Weakened reputation if updated pricing structures and cross operating company network
integrations go poorly
4. Management
Executive Leadership
•
•
•
•
•
•
•
•
•
•
Fred Smith, Founder and Executive Chairman
Rajesh Subramaniam, President and CEO
Mike Lenz, Chief Financial Officer
Mark Allen, General Counsel and Secretary
Robert Carter, Chief Information Officer
Jill Brannon, Chief Sales Officer
Brie Carere, Chief Customer Officer
Richard Smith, President and CEO – FedEx Express
John Smith, President and CEO – FedEx Ground
Lance Moll, President and CEO – FedEx Freight
Executive Leadership Background
Fred Smithxiii
After four years of service in the Marines, including two tours of duty in Vietnam, Smith
launched the original air-ground Federal Express network, which began operations in 1973 to
serve the rapidly growing high-tech, high-value-added sectors of the economy he had predicted.
The company has since grown into a global enterprise that serves more than 220 countries and
territories. As Executive Chairman, Smith focuses on Board governance, as well as issues of
global importance, including sustainability, innovation, and public policy.
Rajesh Subramaniamxiv
Before being named President and CEO-elect in March 2022, he was President and Chief
Operating Officer of FedEx Corporation. Previously, Subramaniam held various leadership roles
in operations and marketing across the FedEx portfolio of operating companies. Subramaniam
has more than 30 years of industry experience at FedEx. Subramaniam is responsible for several
recent transformational initiatives, including revitalizing the company’s operating strategy,
profitably growing the e-commerce business, and harnessing the power of global supply chain
data to drive the company’s digital transformation.
Mike Lenzxv
Lenz’s extensive experience in the transportation industry and finance spans more than three
decades, including his 15 years at FedEx. Lenz joined FedEx in 2005 as vice president of finance
at FedEx Office. He became staff vice president of strategic finance at FedEx Corporation in
2010, followed by a promotion to corporate vice president and treasurer in 2012. Prior to joining
FedEx, Lenz worked at American Airlines, where he held positions in several finance and
commercial areas including investor relations, financial planning and analysis, international
planning and fleet planning.
Compensation
The compensation structure for FedEx executives consists of a base salary, an annual incentive
compensation program (based on annual profit), a long-term incentive program (every three
years based on EPS), along with the ability to receive a bonus, stock awards, and option awards.
The multiple ways that executives are compensated show that they should be aligned with the
business objectives including its short and long-term goals.
Income statements for executive base pay and bonus are filed yearly with the SEC in the
EDGAR filing systemxii. Below shows the FY21 results.
Total
Name and Title
Total Cash
Total Equity
Other
Compensation
Fred Smith
$ 4.42 M
$ 3.43 M
$ 1.15 M
$14.33 M
Chairman and CEO
Raj Subramaniam
$ 2.98 M
$ 3.98 M
$ 1.29 M
$ 8.24 M
President and COO
Mike Lenz
$ 1.85 M
$ 1.94 M
$ 0.78 M
$ 4.51 M
CFO
Don Colleran
President and CEO
$ 2.44 M
$ 2.51 M
$ 1.34 M
$ 5.87 M
– FedEx Express
Total Cash information is comprised of yearly base pay and bonuses. Total Equity consists of the
fair value of stocks, option awards and long-term incentives granted during the fiscal year. Other
covers all compensation that doesn’t fit into the standard categories.
5. Major Ownersiii
7.72%
73.07%
79.18%
2,044
% of Shares Held by All Insiders
% of Shares Held by Institutions
% of Float Held by Institutions
Number of Institutions Holding Shares
Top Institutional Holders
Holder
Shares
Date
Reported
Approximate
%
Value ($)
Vanguard Group, Inc.
(The)
18,784,798
Mar 30, 2022
7.23%
4,378,548,497
Dodge & Cox Inc.
17,328,625
Mar 30, 2022
6.67%
4,039,129,137
Blackrock Inc.
16,452,030
Mar 30, 2022
6.33%
3,834,803,612
Primecap Management
Company
13,237,477
Mar 30, 2022
5.09%
3,085,523,465
State Street Corporation
9,975,457
Mar 30, 2022
3.84%
2,325,179,235
6. News
•
•
•
FedEx Announces Actions to Enhance Stockholder Value and Updates to Board
Governancexvi
o Increases quarterly dividend by more than 50 percent
o Adds total shareholder return performance metric to executive compensation
program
FedEx Presents “Deliver Today, Innovate for Tomorrow” Strategyxvii
o Targeting 18–22% annualized total shareholder return through fiscal year 2025
FedEx launches long-awaited operational integration xvii
o Network 2.0 begins with combining Express and Ground facilities and operations
o Reduction of 100 stations over the next five years
7. Summary of Technical Analysis and Chartsii
Below is the historical stock price chart for FDX showing over two years’ worth of price action
on the weekly time frame. This is done to gain a better perspective of the macro changes in the
stock’s price. As of July 29th, 2022, FDX is at $233.09 per share. The 52-week high is $282.88,
the low is $192.82, and the all-time high is $319.90. FDX is currently below its 50 and 100-week
moving averages (MA) but above its 200-week MA. It is also within the Bollinger Bands upper
half after breaking out above it and unable to turn the 50-week MA into support.
Additionally, the relative strength index (RSI) is at 53 and the moving average
convergence/divergence (MACD) is in a weak uptrend.
With all of this information in mind, the FDX is positioned to regain strength and push its stock
price higher if it can sustain the level it’s at and turn the 50-week MA into support. Additionally,
the added value from fundamentals (increased dividend and optimization of the network) should
support the stock price rallying to new heights.
Financial Statements Analysis
The following financial statements analysis has been conducted on FedEx Corporation
(FDX) fiscal year 2022 financial statements with the year end on May 31st, 2022. Annual reports
were chosen instead of quarterly due to the seasonal nature of volume that is experienced by the
shipping/transportation industry. Generally, November through December is the peak volume
and revenue period for FDX. Thus, the annual reports allow for a more holistic view of how the
company operates. In this report you will find an analysis of FedEx’s liquidity ratios, financial
leverage ratios, turnover ratios, profitability ratios and a prediction of its future performance.
1. Short-term Solvency, or Liquidity, Ratios
Ratio
Current Ratio
Quick Ratio
Cash Ratio
Formula
Current Assets / Current
Liabilities
(Current Assets - Inventory)
/ Current Liabilities
Cash / Current Liabilities
Formula With Data
(Millions of USD)
Calculated
Ratio
20,365 / 14,274
1.43
N/A
N/A
6,897 / 14,274
0.48
The current ratio provides an outlook on how FDX may be able to pay off their debts if needed.
At a 1.43 current ratio, they’re in good shape to do so. We are not able to calculate a quick ratio
as FedEx Corp provides a service, it does not sell a physical product, and so there is no
inventory. The lack of inventory will also appear in turnover ratios. The cash ratio at 0.48 shows
that FDX has a healthy amount of cash on hand, seemingly ready to use in case of macroeconomic shifts. FedEx is above the trucking and courier services industry average of 1.38 for
current ratio and 0.33 for cash ratio.
2. Long-Term Solvency, or Financial Leverage, Ratios
Ratio
Formula
Formula With Data
(Millions of USD)
Calculated
Ratio
Total Debt
Ratio
Debt – equity
Ratio
Equity
Multiplier
Times Interest
Earned Ratio
Cash Coverage
Ratio
(Total Assets – Total
Equity) / Total Assets
(85,994 – 24,939) / 85,994
0.71
Total Debt / Total Equity
61,055 / 24,939
2.45
Total Assets / Total Equity
85,994 / 24,939
3.45
EBIT / Interest
5,532 / 636
8.70
(EBIT + Depreciation) /
Interest
(5,532 + 3,970) / 636
14.94
The leverage ratios show how well a company utilizes and manages financing. The total debt
ratio at 0.71 and debt-equity ratio at 2.45 indicate that FDX is financing a substantial amount of
the business. The equity multiplier at 3.45 emphasize that the company is capable of managing
its assets. The times interest earned ratio at 8.70 and cash coverage ratio at 14.94 further
highlight that FDX is able to meet any liabilities that could arise for years to come. The industry
averages for the debt ratio and debt-equity ratio at 0.50 and 0.90, respectively, show that FedEx
carries more debt that other companies in the sector.
3. Asset Utilization, or Turnover, Ratios
Formula With Data
(Millions of USD)
Calculated
Ratio
N/A
N/A
N/A
N/A
93,512 / 11,863
7.88
365 / 7.88
46.30
Sales / Total Assets
93,512 / 85,994
1.09
Total Assets / Sales
85,994 / 93,512
0.92
Ratio
Formula
Inventory
Turnover
Days Sales in
Inventory
Receivables
Turnover
Days Sales in
Receivables
Total Asset
Turnover
Capital
Intensity
Cost of Goods Sold /
Inventory
365 Days / Inventory
Turnover
Sales / Accounts
Receivables
365 Days / Receivables
Turnover
The asset utilization ratios show how effectively an organization uses their assets. With FedEx’s
business model providing a service, there is no inventory to consider for the inventory turnover
and days sales in inventory ratios. The absence of inventory makes the other ratios more
noteworthy, as there are less statistics to measure the efficacy of FDX’s overall asset
management. The receivables turnover at 7.88 and days sales in receivables at 46.30 show that
FedEx relies on a delayed cashflow but is just above the industry average for days sales in
receivables at 43. The total asset turnover and capital intensity both being close to 1 show that
FDX is very asset and capital heavy. These ratios also highlight the opportunity to use their
assets more effectively.
4. Profitability Ratios
Net Income / Sales
Formula With Data
(Millions of USD)
3,826 / 93,512
Calculated
Ratio
4.09%
Net Income / Total Assets
3,826 / 85,994
4.45%
Net Income / Total Equity
3,826 / 24,939
15.34%
Ratio
Formula
Profit Margin
Return on
Assets (ROA)
Return on
Equity (ROE)
The profitably ratios point to how effective a company is at asset, debt, and liquidity
management. With FDX’s profit margin coming in at 4.09%, they are below the industry average
at 8%. The ROA, 4.45%, and ROE, 15.34%, are also below the industry averages of 10.9% for
ROA and 23.2% for ROE. FedEx has room to improve towards the industries’ averages as they
are below all of them.
5. Market Value Ratios
Ratio
Formula
Price-earnings
Ratio
Market-tobook Ratio
Price per share / Earnings
per share
Market Value per share /
Book Value per share
Formula With Data
Calculated
Ratio
$224.58 / $14.54
15.45
$224.58 / $96.10
2.34
The PE ratio shows how much investors are willing to pay per dollar of earnings. At 15.45 for
FDX, this is comparable with UPS at a 15.15 PE ratio. The MTB ratio for FDX at 2.34 is below
the market-to-book ratio for UPS at 10.51. This shows that FDX has room to increase its market
value as its book value is only 2.34 times lower.
6. Extended Du-Pont Analysis of FedEx Corporation (FDX)
ROE = (EBIT / Sales) x (EBT / EBIT) x (Net Income / EBT) x (Sales / Total Assets) x (Total
Assets / Equity)
ROE = EBIT Margin x Interest Burden x Tax Burden x Asset Turnover x Leverage
Fiscal
Year
ROE
EBIT
Margin
Interest
Burden
Tax
Burden
Asset
Turnover
Leverage
2022
15.34%
0.059
0.885
0.781
1.087
3.448
2021
21.64%
0.088
0.900
0.784
1.014
3.425
2020
7.03%
0.033
0.730
0.771
0.941
4.020
2019
3.04%
0.017
0.553
0.824
1.281
3.064
The return on equity for FedEx Corporation has trended in a positive direction over the past four
years, but its EBIT margin and asset turnover have been low points, holding the ROE back from
reaching the industry average at 23.2%. FDX surpassed the ROE industry average in 2021 but
has been below the average for multiple years beforehand.
7. Extended Du-Pont Analysis of United Parcel Service, Inc. (UPS)
Fiscal
Year
ROE
EBIT
Margin
Interest
Burden
Tax
Burden
Asset
Turnover
Leverage
2021
90.34%
0.132
1.295
0.777
1.402
4.864
2020
200.75%
0.091
0.240
0.728
1.356
93.286
2019
135.24%
0.105
0.725
0.786
1.281
17.623
The United Parcel Service has impressive ROE ratios from the last few years. They have
surpassed FedEx’s ratios and are at the top of the industry. The ROE is extremely high due to the
massive amount of leverage taken. FDX has been consistent between 3 and 4 for leverage while
UPS went up to 93.286 in 2020, certainly skewing its ROE to the upside.
8. Extended Du-Pont Analysis of Deutsche Post AG (DPSGY)
Fiscal
Year
ROE
EBIT
Margin
Interest
Burden
Tax
Burden
Asset
Turnover
Leverage
2021
27.81%
0.098
0.922
0.737
1.285
3.261
2020
22.56%
0.073
0.861
0.761
1.208
3.929
2019
19.29%
0.065
0.842
0.799
1.214
3.625
Comparing DHL to FedEx is more reasonable than UPS to FedEx, as DHL has been relatively
stable in its ROE structure. DHL has consistently used its assets more effectively and had a
higher margin than FDX, contributing to ROEs that are higher than FedEx’s.
9. Common Sized Income Statement for FedEx Corporation (FDX)
Income Statement in Millions of USD
Common Sized Income Statement as a %
of Revenue
Fiscal Year
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
Total Revenue
65,450
69,693
69,217
83,959
93,512
100%
100%
100%
100%
100%
Total
Operating
Expenses
60,587
68,509
66,931
76,544
87,980
92.6%
98.3%
96.7%
91.2%
94.1%
Earnings
Before Interest
and Taxes
(EBIT)
4,863
1,184
2,286
7,415
5,532
7.4%
1.7%
3.3%
8.8%
5.9%
Net Interest
(510)
(529)
(617)
(741)
(636)
(0.8%)
(0.8%)
(0.9%)
(0.9%)
(0.7%)
Income Before
Income Taxes
(EBT)
4,353
655
1,669
6,674
4,896
6.7%
0.9%
2.4%
7.9%
5.2%
Income Tax
Expense
(219)
115
383
1,443
1,070
(0.3%)
0.2%
0.6%
1.7%
1.1%
Net Income
4,572
540
1,286
5,231
3,826
7.0%
0.8%
1.9%
6.2%
4.1%
10. Historical Revenue Growth for FedEx Corporation (FXD)
Revenue Growth for FXD in Millions of USD
100,000
95,000
90,000
85,000
80,000
75,000
70,000
65,000
60,000
55,000
50,000
93,512
83,959
69,693
69,217
2019
2020
65,450
2018
Fiscal Year
2018 to 2019
2019 to 2020
2020 to 2021
2021 to 2022
2021
2022
Revenue Growth
6.5%
(0.7%)
21.3%
11.4%
11. Projected Revenue and Forecast for FedEx Corporation (FXD) in FY 2023
Y = mx + b
Y = 7039x + 55,249.20
Y = 7039(6) + 55,249.20
Y = 97,483.20
Revenue growth at 4.25% for FY 23 based on a linear regression.
With average revenue growth at 9.6% based on FY 2019 – 2022, I would assume a decline in
revenue growth as a recession looms and the stock market is currently in a down trend. My belief
is that a 6.6% increase in revenue growth is realistic, accounting for a 3% decrease in revenue off
the average with the market conditions as they are.
Total revenue, total operating expenses, net interest, income tax expense, earnings per share, and
cashflow per share are all based on a linear regression for FY 2018 - 2022. The below income
statement reflects the linear regression approach as it is based on historical data and not
judgement.
Income Statement in Millions of USD
(Except EPS & CFPS)
Common Sized Income Statement as a %
of Revenue
Fiscal Year
2019
2020
2021
2022
2023*
2019
2020
2021
2022
2023*
Total Revenue
69,693
69,217
83,959
93,512
97,483
100%
100%
100%
100%
100%
Total
Operating
Expenses
68,509
66,931
76,544
87,980
90,957
98.3%
96.7%
91.2%
94.1%
93.3%
Earnings
Before Interest
and Taxes
(EBIT)
1,184
2,286
7,415
5,532
6,527
1.7%
3.3%
8.8%
5.9%
6.7%
Net Interest
(529)
(617)
(741)
(636)
(746)
(0.8%)
(0.9%)
(0.9%)
(0.7%)
(0.8%)
Income Before
Income Taxes
(EBT)
655
1,669
6,674
4,896
7,272
0.9%
2.4%
7.9%
5.2%
7.5%
Income Tax
Expense
115
383
1,443
1,070
1,730
0.2%
0.6%
1.7%
1.1%
1.8%
Net Income
540
1,286
5,231
3,826
5,542
0.8%
1.9%
6.2%
4.1%
5.7%
Earnings per
share (EPS)
$2.06
$4.92
$19.79
$14.54
$21.07
0.003
%
0.007
%
0.0236
%
0.0156
%
0.0216
%
$18.70
$26.84
$26.22
$35.29
0.0127
%
0.0270
%
0.0320
%
0.0280
%
0.0362
%
Cashflow per
share (CFPS)
*
$8.85
FY 2023 is a forward-looking extrapolation based on historical data
Risk and Pricing
1. Risk Factors
The biggest risk factor for FedEx Corporation is the macroeconomic environment. With a beta of
1.24, FDX follows the broader market with higher highs and lower lows. The US is in a technical
recession after receiving two negative GDP growth quarters, but a recession has not been
declared by the Bureau of Economic Analysis (BEA). The worst may have passed already but if
not, the US is certainly in no ordinary recession, with seemingly strong labor markets and
continued demand for luxury goods. Consequently, the sustained demand for goods that can be
shipped is a positive sign for FDX and their growth.
A secondary risk factor for FDX is poor integration of the Express, Ground, and Freight
networks in the US. While management is confident in the process of integrating the networks,
being siloed for so many years and having processes that may not communicate together could
make for a more difficult physical and internal integration than anticipated. The integration of
TNT Express in Europe (acquired in 2016) has had its hiccups and is yet to be fully integrated.
The lessons learned from that integration can hopefully be applied in the US.
2. Expected Rate of Return
The Capital Asset Pricing Model (CAPM) will be used to estimate the risk involved with
investing in FDX.
Expected Return = Risk Free Rate + Beta*(Expected Market Returns – Risk Free Rate)
𝐸(𝑅i) = Rf + 𝛽i[𝐸(Rm) – Rf]
Rf (Risk Free Rate) = 2.88% (US 52-week T-Bill)xix
𝛽i (Beta) = 1.24ii
E(Rm) (Expected Market Return) = 7.15%
• Historical market returns average 10% - 12%xxi
• Vanguard’s 10-year average market return projections ranged from 2.3% - 4.3%xx
• Returns may fall below historical average returns and above pessimistic 10-year
average projection: (10% + 12% + 2.3% + 4.3%) / 4 = 7.15%
E(Ri) = 2.88% + 1.24*(7.15% - 2.88%)
E(Ri) = 8.17%
3. Fair Price
The Discount Dividend Model: Single Stage will contribute to estimating the fair price of FDX.
Price = Next Year’s Dividend / (Expected Rate of Return – Growth Rate)
P0 = D1 / (E(Ri) – g) = D0(1+g) / (E(Ri) – g)
D0 (Most Recent Dividend) = $1.15 per share quarterly; $4.60 per share annually
• Adjusted dividend payout ratio of at least 25% moving forwardxvii
• Current dividend payout ratio of 20.94%xxii
g (Growth Rate) = 5%
• FedEx Forecasts 4-6% annual revenue growthxvii
• Estimated industry growth in North America is 5%x
P0 = $4.60*(1 + 5%) / (8.17% - 5%)
P0 = $152.37
The Free Cash Flow Model: Single Stage will contribute to estimating the fair price of FDX.
FCFE (Free Cash Flow from Equity) = Cash from Operating Activities – Capital Expenditures +
Net Debt Issued (Repaid)
Ve= FCFE / (E(Ri) – g)
P0 = Ve / Shares Outstanding
Cash from Operating Activities = $ 9,832 M
Capital Expenditures = $ 6,763 M
Net Debt Repaid = $ 161 M
E(Ri) = 8.17%
g (Growth Rate) = 5%
Shares Outstanding = 259,513,685
FCFE = $ 9,832 M - $ 6,763 M - $ 161 M
FCFE = $ 2,908 M
Ve = $ 2,908 M / (8.17% - 5%)
Ve = $ 91,735 M
P0 = $ 91,735,000,000 / 259,513,685
P0 = $ 353.49
The Discount Dividend Model will be weighted at 20.94% as is the current payout ratio and the
Free Cash Flow Model will be weighted at 79.06% to create a fair price estimate.
Pf (Fair Price) = ($152.37 * 20.94%) + ($353.49 * 79.06%)
Pf = $311.38
4. Market Comparison
As of July 29th, 2022, FDX is trading for $233.09 which is $78.29 below the estimated fair price
at $311.38. If FDX were to reach the fair price, this would be a return on investment of 33.59%
from the current price. Over the past year, FDX is down -16.74% while the S&P 500 (the
market) is down -7.35%. This is in line with FDX’s beta and shows that pending a shift in the
macroeconomic climate, there is upside room for rising to the estimate fair value and aligning
with the broader market.
5. Recommendation
FedEx Corporation’s stock price is below its fair value. Thus, our recommendation is to buy
FDX. Additionally, the fundamental shift in the organization and focus on total shareholder
return may create additional value in the long term as FDX moves to position itself beyond the
courier, express, and parcel industry.
6. Sensitivity Analysis
The fair value estimate for FDX stock is heavily dependent on the assumptions used such as the
growth rate, the risk-free rate, and the expected market return. If we are to adjust the growth rate
from 5% to 4.25%, as provided in the regression analysis of revenue growth in section 11 of the
financial statement analysis, we would have a lower estimate of the fair value.
FCFE = $ 9,832 M - $ 6,763 M - $ 161 M
FCFE = $ 2,908 M
Ve = $ 2,908 M / (8.17% - 4.25%)
Ve = $ 74,184 M
P0 = $ 74,183,673,000 / 259,513,685
P0 = $ 285.86
As demonstrated above, a difference of 0.75% in the growth rate attributed to a $ 17,551 M
difference in the estimated value of equity. This change causes the estimated price to decline to
$285.56 from $353.49 (if we do not weigh additional models). An analyst must truly be
confident in their assumptions and models to accurately estimate the fair price of a stock.
Regardless, for this analysis on FDX, even after lowering the growth rate, the fair price for FDX
is above its market price and the recommendation to buy stands.
Appendix
1. References
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
xi.
xii.
xiii.
xiv.
xv.
xvi.
xvii.
xviii.
xix.
xx.
xxi.
xxii.
https://investors.fedex.com/company-overview/fedex-team/default.aspx
https://finance.yahoo.com/quote/FDX?p=FDX
https://finance.yahoo.com/quote/FDX/holders?p=FDX
https://www.localmemphis.com/article/news/local/fedex-says-amazon-isnt-itsbiggest-customer/522-71aa4070-a0e8-4940-a660-07e8a0559812
https://www.commercialappeal.com/story/money/industries/logistics/2020/08/10/uspostal-service-changes-fedex-ups/3299744001/
https://investors.fedex.com/company-overview/overview-of-services/default.aspx
https://investors.fedex.com/company-overview/overview-of-company/default.aspx
https://www.fedex.com/en-us/about/company-structure.html#Express
https://investors.fedex.com/company-overview/acquisition-history/default.aspx
https://www.statista.com/topics/4063/courier-express-and-parcels-cep-market-inthe-united-states/#topicHeader__wrapper
https://www.businessinsider.com/amazon-surpassing-ups-fedex-by-2022-dave-clark2021-11
https://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=15167093198207416882&type=sect&TabIndex=2&companyid=44679&ppu=%252fdefault.aspx%25
3fcompanyid%253d44679
https://www.fedex.com/en-us/about/leadership/frederick-w-smith.html
https://www.fedex.com/en-us/about/leadership/raj-subramaniam.html
https://www.fedex.com/en-us/about/leadership/mike-lenz.html
https://investors.fedex.com/news-and-events/investor-news/investor-newsdetails/2022/FedEx-Announces-Actions-to-Enhance-Stockholder-Value-andUpdates-to-Board-Governance/default.aspx
https://investors.fedex.com/news-and-events/investor-news/investor-newsdetails/2022/FedEx-Presents-Deliver-Today-Innovate-for-TomorrowStrategy/default.aspx
https://www.freightwaves.com/news/fedex-launches-long-awaited-operationalintegration
https://home.treasury.gov/resource-center/data-chart-center/interestrates/TextView?type=daily_treasury_bill_rates&field_tdr_date_value=2022
https://advisors.vanguard.com/insights/article/marketperspectivesdecember2021
https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp500.asp
https://www.morningstar.com/stocks/xnys/fdx/dividends
2. Financial Statements
FedEx Corporation
Condensed Consolidated Balance Sheets
FY 2018 – FY 2022
May 31
In millions (except share data)
.
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
$ 3,265
8,481
525
1,070
13,341
$ 2,319
9,116
553
1,098
13,086
$ 4,881
10,102
572
828
16,383
$ 7,087
12,069
587
837
20,580
$ 6,897
11,863
637
968
20,365
20,749
9,727
5,794
7,708
11,143
55,121
22,793
10,409
6,268
8,339
11,702
59,511
24,518
11,382
6,884
9,101
13,139
65,024
26,268
13,012
7,486
9,282
14,029
70,077
27,874
14,930
8,098
9,806
14,567
75,275
ASSETS
Current Assets
Cash and cash equivalents
Receivables, less allowances
Spare parts, supplies, and fuel, less allowances
Prepaid expenses and other
Total current assets
Property and Equipment, at Cost
Aircraft and related equipment
Package handling and ground support equipment
Information technology
Vehicles and trailers
Facilities and other
Less accumulated depreciation and amortization
Net property and equipment
Other Long-Term Assets
Operating lease right-of-use-assets, net
Goodwill
Other assets
Total other long-term assets
26,967
29,082
31,416
34,325
37,184
28,154
30,429
33,608
35,752
38,091
—
6,973
3,862
10,835
—
6,884
4,004
10,888
13,917
6,372
3,257
23,546
15,383
6,992
4,070
26,445
16,613
6,544
4,381
27,538
$ 52,330
$ 54,403
$ 73,537
$ 82,777
$ 85,994
LIABILITIES AND COMMON STOCKHOLDERS' INVESTMENT
Current Liabilities
Current portion of long-term debt
Accrued salaries and employee benefits
Accounts payable
Operating lease liabilities
Accrued expenses
Total current liabilities
Long-Term Debt, Less Current Portion
Other Long-Term Liabilities
Deferred income taxes
Pension, postretirement healthcare, and other benefit obligations
Self-insurance accruals
Operating lease liabilities
Deferred lease obligations
Other liabilities
Total other long-term liabilities
$ 1,342
2,177
2,977
—
3,131
9,627
$
964
1,741
3,030
—
3,278
9,013
$
51
1,569
3,269
1,923
3,532
10,344
$
146
2,903
3,841
2,208
4,562
13,660
$
82
2,531
4,030
2,443
5,188
14,274
15,243
16,617
21,952
20,733
20,182
2,867
2,187
1,784
—
551
655
8,044
2,821
5,095
1,899
—
531
670
11,016
3,162
5,019
2,104
12,195
—
466
22,946
3,927
3,501
2,430
13,375
—
983
24,216
4,093
4,448
2,889
14,487
—
682
26,599
32
3,117
24,823
(578)
(7,978)
19,416
32
3,231
24,648
(865)
(9,289)
17,757
32
3,356
25,216
(1,147)
(9,162)
18,295
32
3,481
29,817
(732)
(8,430)
24,168
32
3,712
32,782
(1,103)
(10,484)
24,939
Commitments and Contingencies
Common Stockholders' Investment
Common stock $0.10 par value; 800 million shares auth.
Additional paid-in capital
Retained earnings
Accumulated other comprehensive (loss) income
Treasury stock, at cost
Total common stockholders' investment
$ 52,330
$ 54,403
$ 73,537
$ 82,777
$ 85,994
Unaudited. Differences may result due to rounding.
Q4 FY22 Stat Book / 2
FedEx Corporation
Annual Consolidated Statements of Income
FY 2018 – FY 2022
Years ended May 31
In millions, except EPS
FY 2018
FY 2019
FY 2020
FY 2021
FY 2022
Revenue:
FedEx Express segment
$ 36,172
$ 37,331
$ 35,513
$ 42,078
$ 45,814
FedEx Ground segment
18,395
20,522
22,733
30,496
33,232
FedEx Freight segment
FedEx Services segment
Other and eliminations
Total Revenue
6,812
28
4,043
65,450
7,582
22
4,236
69,693
7,102
22
3,847
69,217
7,833
32
3,520
83,959
9,532
253
4,681
93,512
23,795
15,101
3,361
3,095
3,374
24,776
16,654
3,360
3,353
3,889
25,031
17,466
3,712
3,615
3,156
30,173
21,674
4,155
3,793
2,882
32,058
24,118
4,712
3,970
5,115
2,622
—
380
2,834
320
—
2,893
—
3,372
278
—
9,450
61,178
10,041
65,227
435
10,492
66,800
3,328
116
—
11,981
78,102
13,644
87,267
Operating Expenses:
Salaries and employee benefits
Purchased transportation
Rentals and landing fees
Depreciation and amortization
Fuel
Maintenance and repairs
1
Business realignment costs
Goodwill and other asset impairment charges
Other2
Total Operating Expenses
Operating Income3:
FedEx Express segment
FedEx Ground segment
FedEx Freight segment
Corporate, other, and eliminations
Total Operating Income
Other (Expense) Income:
Interest, net
Other retirement plans income (expense)4
Loss on debt extinguishment
Other, net
Total Other Income (Expense)
Income Before Income Taxes
Provision for Income Taxes (Benefit)
2,172
2,556
490
(946)
4,272
2,176
2,663
615
(988)
4,466
996
2,014
580
(1,173)
2,417
2,810
3,193
1,005
(1,151)
5,857
2,922
2,642
1,663
(982)
6,245
(510)
598
—
(7)
81
(529)
(3,251)
—
(31)
(3,811)
(617)
(122)
—
(9)
(748)
(741)
1,983
(393)
(32)
817
(636)
(726)
—
13
(1,349)
4,896
4,353
(219)
655
1,669
6,674
115
383
1,443
1,070
Net Income
$ 4,572
$ 540
$ 1,286
$ 5,231
$ 3,826
Basic Earnings Per Share
$ 17.08
$ 2.06
$ 4.92
$ 19.79
$ 14.54
267
262
261
264
263
$ 16.79
$ 2.03
$ 4.90
$ 19.45
$ 14.33
272
265
262
268
266
Weighted Avg. Common Shares
Diluted Earnings Per Share
Weighted Avg. Diluted Shares
SELECTED STATISTICS
Operating Margin
Pre-tax Margin
Return on Assets
Return on Equity
6.5%
6.4%
3.5%
7.0%
6.7%
6.7%
9.1%
25.8%
0.9%
1.0%
2.9%
2.4%
2.0%
7.1%
7.9%
6.7%
24.6%
5.2%
4.5%
15.6%
Dividends Paid Per Common Share
$ 2.00
$ 2.60
$ 2.60
$ 2.60
$ 3.00
1-
FY22 includes $278 million ($214 million, net of tax, or $0.80 per diluted share) of costs associated with our workforce reduction plan in Europe at
FedEx Express.
2-
FY22 annual consolidated Other operating expense amounts include a legal charge of $210 million ($160 million, net of tax, or $0.60 per diluted
share) related to accrued pre- and post- judgment interest incurred in connection with a legal matter involving FedEx Ground. These amounts are
included in “Corporate, other, and eliminations”.
3-
FY22 amounts include integration expenses of $132 million ($103 million, net of tax, or $0.39 per diluted share). These expenses are included in
"Corporate, other, and eliminations" and FedEx Express results.
4-
FY22 amounts include a noncash a net loss of $1.6 billion ($1.2 billion, net of tax, or $4.49 per diluted share) associated with our mark-to-market
retirement plans accounting adjustments.
Unaudited. Differences may result due to rounding.
Q4 FY22 Stat Book / 4