Inside the Numbers
In its last quarter, FedEx reported $3.47 in adjusted earnings per share which topped analysts' expectations of $3.23. Revenue also topped at $21.5 billion vs expectations of $20.0 billion.
Revenue increased by 23% from last year's $17.5 billion during the same quarter. Most of the growth came from "strong volume growth" in home and business deliveries as well as international shipments. Earnings were more than 100% higher from last year's $1.41 in EPS.
The company's strong performance was driven by a huge holiday shopping season. FedEx benefitted from the pandemic as stimulus payments ensured that holiday spending was strong, yet many elected to shop online due to health concerns and restrictions in many areas. The company also took a hit in February due to severe weather in parts of the country that impaired operations in the South and Southeast. Overall, the weather adversely impacted operating income by $350 million.
The company issued 2021 EPS guidance of between $17.60 and $18.20. CEO and founder Fred Smith added that he expects "demand for our unmatched e-commerce and international express solutions to remain very high for the foreseeable future." Another positive was improvements in margins with higher volumes which bodes well for the company's future.
Stock Price Outlook
FedEx's stock outlook is puzzling. It could be argued that the company will see a deceleration in sales as online shopping likely slows or contracts with people electing to go to stores and shop in-person. However, this reduction will certainly be offset somewhat by increased economic activity which is supportive of increased business-to-business deliveries.
Another perspective is that FedEx is essentially a value stock given its forward PE of 14 which is much cheaper than the S&P 500's of 22. Accelerating economic growth is a positive catalyst for this group and should lead to some multiple-expansion.
On a technical basis, the stock's sideways price action has relieved some overbought conditions. Investors should look to buy on dips especially if the stock sells off on further reopening of the economy.