FedEx Corp (FDX, Financial) saw a daily gain of 4.83%, and a 3-month gain of 8.68%. With an Earnings Per Share (EPS) of 15.5, we are left with the question: is the stock Fairly Valued? This article provides a comprehensive valuation analysis of FedEx Corp (FDX), aiming to answer that very question.
Understanding FedEx Corp (FDX, Financial)
FedEx Corp (FDX) pioneered overnight delivery in 1973 and remains the world's largest express package provider. In its fiscal 2023, FedEx derived 47% of its revenue from the express division, 37% from ground, and 11% from freight. The remainder comes from other services, including FedEx Office and FedEx Logistics. FedEx's stock price currently stands at $262.63, while the GF Value, an estimation of fair value, is $251.97.
Defining the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
The stock of FedEx (FDX, Financial) appears to be fairly valued based on our valuation method. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. FedEx stock, at its current price of $262.63 per share, gives every indication of being fairly valued.
As FedEx is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing FedEx's Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. FedEx has a cash-to-debt ratio of 0.18, which is worse than 72.49% of 938 companies in the Transportation industry. The overall financial strength of FedEx is 6 out of 10, which indicates that the financial strength of FedEx is fair.
FedEx's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. FedEx has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $90.20 billion and Earnings Per Share (EPS) of $15.5. Its operating margin is 5.92%, which ranks worse than 58.63% of 950 companies in the Transportation industry. Overall, the profitability of FedEx is ranked 8 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. FedEx's 3-year average revenue growth rate is better than 62.19% of 915 companies in the Transportation industry. FedEx's 3-year average EBITDA growth rate is 20.7%, which ranks better than 66.83% of 820 companies in the Transportation industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, FedEx's return on invested capital is 5.62, and its cost of capital is 7.86.
Conclusion
In conclusion, the stock of FedEx (FDX, Financial) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 66.83% of 820 companies in the Transportation industry. To learn more about FedEx stock, you can check out its 30-Year Financials here.
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