Joe Raedle/Getty Images News
Now may be a great time to buy FedEx Corporation (NYSE:FDX) stock as a long-term buy and hold investment. FedEx is a global logistics company operating worldwide. Over the past few months, global economic weakness due to inflation has dropped the stock into value territory with a current Price to Earnings ratio under 12.
The Price to Earnings ratio (P/E) is a measure of the stock price relative to the earnings per share. A low P/E ratio indicates that the stock is likely undervalued, meaning the stock price is much lower than the company’s earnings may be able to justify. This lower P/E is beneficial to investors because it means they can buy the stock at a cheaper valuation and potentially gain higher returns over the long-run. On the flipside, the low P/E ratio could indicate that investors expect the company may not grow quickly.
Typically, one can view the P/E ratio over a long period of time to gauge a stock’s relative valuation. Excluding the 2020 COVID recession and the 2008 financial crisis, we can see a period of 2011 to 2019 below. During this period, FedEx stock rarely traded below a P/E ratio of 15.
PE Chart (Online)
After the COVID-19 pandemic recession, valuation never really recovered to prior levels. Here’s a chart of the P/E ratio from June 2021 to present. The past few years has brought lower relative valuations. This is despite the company growing revenue from $65.5M in 2018 to $93.5M in 2022 and remaining profitable during 2020’s pandemic.
PE Chart (Online)
As you can see the stock has underperformed the S&P500 benchmark ETF (SPY) in the past year. FedEx has lost 25.28% of its value in the last 52 weeks. This underperformance is also reflected in the five-year chart, as FedEx has roughly dropped 25% over the five year time period.
Stock Chart (Seeking Alpha)
The current low valuation is likely due to fears over a global recession and a slow-down in shipping. Management has in fact been hesitant about giving high earnings guidance as well, recently withdrawing guidance for FY23. However, with a consistent history of growing sales and dividends, the stock is now a bargain. It is a great time to buy and hold through any rough patches.
FedEx has many competitive advantages.
Global Footprint: They have a strong global presence in over 220 countries and territories, which gives the company a substantial advantage over its smaller competitors. This creates barriers to entry that can only be equaled by other global companies.
FedEx Intl Coverage Map (Fedex.com)
Logistics and Delivery Expertise: FedEx has a long history of providing reliable and cost-effective logistics services. This expertise gives it an advantage over any potential upstart competitors.
Technology: FedEx has invested heavily in technology, including package tracking systems, route optimization software tools, and mobile device applications. This state-of-the-art technology enables the company to provide faster and more reliable service.
Customer Service: FedEx has a strong reputation for providing exceptional customer service. Customer service is the key to satisfaction and repeat customers.
Brand Recognition: FedEx has become one of the most recognizable brands in the world. In 2022, FedEx was ranked as the 16th most admired company in the world and highest ranked delivery company according to Fortune.
The business isn’t without its risks. Here are the top risks for FedEx.
Increasing Competition: FedEx faces increasing competition from smaller, more nimble competitors who can offer lower prices and faster shipping times. There is also competition from Amazon.com (AMZN) as the company has implemented their own delivery services.
Unpredictable Fuel Prices: Fuel prices are unpredictable and can cause significant fluctuations in FedEx’s costs. This can be difficult to manage and can hurt profits. However, oil prices recently dropped below $75 a barrel and this could significantly help with fuel costs for the company.
According to a recent 10Q filing, the company has been managing their capital allocation in order to maintain adequate liquidity. This is partially due to “inflationary pressure” and “rising fuel prices.”
Cash Needs (Fedex 10Q)
This note was prepared for the quarter results ending August 31, 2022. Since then, the price of oil has dropped from about $90 per barrel to about $75 per barrel today. Fuel costs are down.
Inflationary pressures are also beginning to abate. The Federal Reserve has recently signaled an end to the 75 basis point hikes, but also the CPI reports are beginning to come in lower than expected with the report from December 13th, 2022 showing Core CPI year over year at 6.0%, versus the 6.3% that was expected.
What about Dividends?
FedEx has managed to double their dividend over the past five years. The ten-year dividend growth rate is 19.97%, substantially higher than many other companies. This dividend is comparatively safe with a payout ratio of about 31% and the current dividend yield is 2.6% making it a juicy alternative to some bonds and other equities.
Dividend investing is an important strategy among many investors who want to generate a steady stream of passive income from their investment portfolio. The main thing about this investing strategy is to invest in equities that have a proven track record of paying consistent dividends, as well as possibly buying those that have the potential to increase their dividends with time. By choosing these investments, investors can enjoy the benefits of a stable income stream from their portfolio, without having to worry much about the stock price movements.
When you are looking for dividend stocks to buy, one of the best criteria that investors should review is the dividend yield. This is the percentage of the stock’s price that is paid out to investors as a dividend each period. A higher dividend yield typically indicates that the company has been paying out a larger dividend relative to the stock price, and this is a good sign that investors are getting more value for their investment, although in some cases that might not be true. The FedEx dividend yield of 2.6% is higher than the dividend yield of the S&P 500 at 1.5%.
In addition to reviewing the dividend yield, investors should also look at the company’s track record of increasing dividend payments. Companies that have a long track record of paying dividends but also increasing their dividends are generally considered to be more dependable investments. FedEx has increased their dividend at least 11 times since 2009 from 11 cents to $1.15 currently.
When investing in dividend paying equity, investors should also consider the company’s dividend payout ratio. This is the percentage of the company’s annual earnings that are paid out as annual dividends. Any payout ratio that is too high can be a warning sign that the company may not be able to sustain dividend payments going forward. FedEx has a payout ratio of 31%. This is consistent with other S&P 500 companies on average who typically pay out about 1/3rd of their earnings.
Overall, dividend investing is a good option for investors who want to generate consistent income from their investments. By reviewing the dividend yield, dividend payment history, and the payout ratio, investors can select stocks that offer a stable income stream with the potential for capital appreciation as well. FedEx checks all of those boxes.
Summary
FedEx common stock, below $180, is an attractive long–term buy and hold investment for investors due to the company’s strong competitive advantages in the logistics industry and worldwide. The company has a wide range of services, an extensive global business, intensive investment in global infrastructure, and an experienced management team that will allow it to outperform. Additionally, FedEx is well–positioned to capitalize on the growth of e–commerce and the increasing demand for express shipping services on online sales. FedEx has also consistently demonstrated its ability to increase profits and dividends for investors, making it an attractive long–term buy and hold investment.
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Joe Raedle/Getty Images News
Now may be a great time to buy FedEx Corporation (NYSE:FDX) stock as a long-term buy and hold investment. FedEx is a global logistics company operating worldwide. Over the past few months, global economic weakness due to inflation has dropped the stock into value territory with a current Price to Earnings ratio under 12.
The Price to Earnings ratio (P/E) is a measure of the stock price relative to the earnings per share. A low P/E ratio indicates that the stock is likely undervalued, meaning the stock price is much lower than the company’s earnings may be able to justify. This lower P/E is beneficial to investors because it means they can buy the stock at a cheaper valuation and potentially gain higher returns over the long-run. On the flipside, the low P/E ratio could indicate that investors expect the company may not grow quickly.
Typically, one can view the P/E ratio over a long period of time to gauge a stock’s relative valuation. Excluding the 2020 COVID recession and the 2008 financial crisis, we can see a period of 2011 to 2019 below. During this period, FedEx stock rarely traded below a P/E ratio of 15.
PE Chart (Online)
After the COVID-19 pandemic recession, valuation never really recovered to prior levels. Here’s a chart of the P/E ratio from June 2021 to present. The past few years has brought lower relative valuations. This is despite the company growing revenue from $65.5M in 2018 to $93.5M in 2022 and remaining profitable during 2020’s pandemic.
PE Chart (Online)
As you can see the stock has underperformed the S&P500 benchmark ETF (SPY) in the past year. FedEx has lost 25.28% of its value in the last 52 weeks. This underperformance is also reflected in the five-year chart, as FedEx has roughly dropped 25% over the five year time period.
Stock Chart (Seeking Alpha)
The current low valuation is likely due to fears over a global recession and a slow-down in shipping. Management has in fact been hesitant about giving high earnings guidance as well, recently withdrawing guidance for FY23. However, with a consistent history of growing sales and dividends, the stock is now a bargain. It is a great time to buy and hold through any rough patches.
FedEx has many competitive advantages.
Global Footprint: They have a strong global presence in over 220 countries and territories, which gives the company a substantial advantage over its smaller competitors. This creates barriers to entry that can only be equaled by other global companies.
FedEx Intl Coverage Map (Fedex.com)
Logistics and Delivery Expertise: FedEx has a long history of providing reliable and cost-effective logistics services. This expertise gives it an advantage over any potential upstart competitors.
Technology: FedEx has invested heavily in technology, including package tracking systems, route optimization software tools, and mobile device applications. This state-of-the-art technology enables the company to provide faster and more reliable service.
Customer Service: FedEx has a strong reputation for providing exceptional customer service. Customer service is the key to satisfaction and repeat customers.
Brand Recognition: FedEx has become one of the most recognizable brands in the world. In 2022, FedEx was ranked as the 16th most admired company in the world and highest ranked delivery company according to Fortune.
The business isn’t without its risks. Here are the top risks for FedEx.
Increasing Competition: FedEx faces increasing competition from smaller, more nimble competitors who can offer lower prices and faster shipping times. There is also competition from Amazon.com (AMZN) as the company has implemented their own delivery services.
Unpredictable Fuel Prices: Fuel prices are unpredictable and can cause significant fluctuations in FedEx’s costs. This can be difficult to manage and can hurt profits. However, oil prices recently dropped below $75 a barrel and this could significantly help with fuel costs for the company.
According to a recent 10Q filing, the company has been managing their capital allocation in order to maintain adequate liquidity. This is partially due to “inflationary pressure” and “rising fuel prices.”
Cash Needs (Fedex 10Q)
This note was prepared for the quarter results ending August 31, 2022. Since then, the price of oil has dropped from about $90 per barrel to about $75 per barrel today. Fuel costs are down.
Inflationary pressures are also beginning to abate. The Federal Reserve has recently signaled an end to the 75 basis point hikes, but also the CPI reports are beginning to come in lower than expected with the report from December 13th, 2022 showing Core CPI year over year at 6.0%, versus the 6.3% that was expected.
What about Dividends?
FedEx has managed to double their dividend over the past five years. The ten-year dividend growth rate is 19.97%, substantially higher than many other companies. This dividend is comparatively safe with a payout ratio of about 31% and the current dividend yield is 2.6% making it a juicy alternative to some bonds and other equities.
Dividend investing is an important strategy among many investors who want to generate a steady stream of passive income from their investment portfolio. The main thing about this investing strategy is to invest in equities that have a proven track record of paying consistent dividends, as well as possibly buying those that have the potential to increase their dividends with time. By choosing these investments, investors can enjoy the benefits of a stable income stream from their portfolio, without having to worry much about the stock price movements.
When you are looking for dividend stocks to buy, one of the best criteria that investors should review is the dividend yield. This is the percentage of the stock’s price that is paid out to investors as a dividend each period. A higher dividend yield typically indicates that the company has been paying out a larger dividend relative to the stock price, and this is a good sign that investors are getting more value for their investment, although in some cases that might not be true. The FedEx dividend yield of 2.6% is higher than the dividend yield of the S&P 500 at 1.5%.
In addition to reviewing the dividend yield, investors should also look at the company’s track record of increasing dividend payments. Companies that have a long track record of paying dividends but also increasing their dividends are generally considered to be more dependable investments. FedEx has increased their dividend at least 11 times since 2009 from 11 cents to $1.15 currently.
When investing in dividend paying equity, investors should also consider the company’s dividend payout ratio. This is the percentage of the company’s annual earnings that are paid out as annual dividends. Any payout ratio that is too high can be a warning sign that the company may not be able to sustain dividend payments going forward. FedEx has a payout ratio of 31%. This is consistent with other S&P 500 companies on average who typically pay out about 1/3rd of their earnings.
Overall, dividend investing is a good option for investors who want to generate consistent income from their investments. By reviewing the dividend yield, dividend payment history, and the payout ratio, investors can select stocks that offer a stable income stream with the potential for capital appreciation as well. FedEx checks all of those boxes.
Summary
FedEx common stock, below $180, is an attractive long–term buy and hold investment for investors due to the company’s strong competitive advantages in the logistics industry and worldwide. The company has a wide range of services, an extensive global business, intensive investment in global infrastructure, and an experienced management team that will allow it to outperform. Additionally, FedEx is well–positioned to capitalize on the growth of e–commerce and the increasing demand for express shipping services on online sales. FedEx has also consistently demonstrated its ability to increase profits and dividends for investors, making it an attractive long–term buy and hold investment.
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