FedEx Corp (FDX, Financial) has seen a daily gain of 1.32%, and a 3-month gain of 12.64%. With an Earnings Per Share (EPS) of 16.4, the question arises: is the stock fairly valued? This article will delve into a detailed analysis of FedEx's valuation, providing a comprehensive understanding of the company's intrinsic value.
Company Overview
FedEx Corp (FDX, Financial) pioneered overnight delivery in 1973 and has since grown to become the world's largest express package provider. In fiscal 2023, FedEx derived 47% of its revenue from its express division, 37% from ground, and 11% from freight, with the remainder coming from other services. The company acquired Dutch parcel delivery firm TNT Express in 2016, further expanding its global reach.
Comparing the company's stock price of $264.54 to the GF Value of $251.3, FedEx (FDX, Financial) is estimated to be fairly valued. This valuation is based on a combination of the company's historical trading multiples, its past performance and growth, and estimates of its future business performance. The following sections will delve deeper into these factors.
Understanding GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It takes into account the stock's historical trading multiples, an adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on the summary page gives an overview of the fair value at which the stock should be traded.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given that FedEx's stock price is close to the GF Value Line, it is considered fairly valued, and the long-term return of its stock is likely to be close to the rate of its business growth.
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FedEx's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective. FedEx has a cash-to-debt ratio of 0.19, which ranks worse than 71.6% of 940 companies in the Transportation industry. Based on this, FedEx's financial strength is ranked 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. FedEx has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $88.60 billion and Earnings Per Share (EPS) of $16.4. Its operating margin is 6.43%, which ranks worse than 56.72% of 952 companies in the Transportation industry. Overall, the profitability of FedEx is ranked 8 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of FedEx is10.1%, which ranks better than 62.27% of 917 companies in the Transportation industry. The 3-year average EBITDA growth is 20.7%, which ranks better than 66.91% of 822 companies in the Transportation industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, FedEx's ROIC was 5.98, while its WACC came in at 8.05.
Conclusion
In conclusion, FedEx (FDX, Financial) is estimated to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 66.91% of 822 companies in the Transportation industry. To learn more about FedEx stock, you can check out its 30-Year Financials here.
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