The stock of Federal Express (FDX) has been in a steady decline. I own shares and have been paying attention. There are varied considerations.
Federal Express made a $4.8 billion acquisition of TNT Express to give it a presence in Europe. Not long after the deal went through, TNT got hit with one of the worst cyberattaks ever, yclept NotPetya. After all the delays and costs, ongoing pressure pertaining to the European project resurfaced in Italy with attention to its national budget and continental guidelines.
Currently, it seems that each thing is now in the past. Some commentators on the stock may have missed the significance of Europe to the company. There are other considerations, but they might not be as central.
There has been consistent discussion on trade relations with China. It is a sensible international concern and does matter. If trade in Asia slows down, so does the company’s business, and its financial results.
Another issue is the high capital expenditures FedEx currently makes, and is scheduled to be responsible for well into the future; largely because it buys aircraft. Though the stock reports a profit–and is remarkably inexpensive at under 10x its current-year price to earnings ratio–it is essentially borrowing to pay its deliberately small dividend. A company that borrows to pay its dividend may almost be like a driver who collides with the rear end of a different vehicle: there might be an instance in which the party is not in trouble, but it’s usually not the case.
While all the consensus estimates and guidance indicate future acceleration, my intent is not to portray FDX as a growth stock currently. The onus probably should be on value. Again, the price to earnings multiple is low, and this is after several downgrades and lowered estimates pursuant to its recent quarterly announcement for the Second Quarter of 2019 that ended November 30th. While there are different ways of pursuing value-oriented investing, to me it makes sense that heed should be paid to metrics that specifically use the term: book value and tangible book value.
Heading into the 2016 presidential election, with Democrats who sought to dismantle the largest financial institutions leading in the polls, Bank of America shares were trading at less than their tangible book value, which is similar to liquidation value in the event of a bankruptcy. The company was not bankrupt, however. It was solidly profitable and paying dividends. Further, it was buying back all the stock it could–which in hindsight was prudent action on behalf of investors–because it then doubled.
Given the steep descent of the share price, some sort of improved proposition to FDX investors should be evident.
FedEx is not trading at an absurdly low valuation like Bank of America was. However, it is historically low on Book Value, or shareholder’s equity, at just over 2x $19.2 billion. Perhaps $150 can serve as an indefinite floor for the share price. If not, exactly 2x shareholder’s equity should be interesting, and that would be at about $147.82.
During the past quarter, the company refinanced some debt. Rates appears to be much better, as to slightly lower interest payments; though liabilities have gone up:
Another issue is the advent of Amazon.com, with its newer venture Prime Air, and everything from a fleet of airplanes to delivery drones, to an entrepreneurial platform for independent delivery businesses. When this type of headline(s) surfaces, the share price of an affected company can really dive. FDX has been plummeting ever since. However, once the stock finds support it can eventually regain all of its losses.
It is borrowing to pay the dividend, but the distribution is small and the interest rate is lower than before. Fuel prices are cheaper, news pertaining to the Italian budget in Europe has been positive, and the stock is at an enticing valuation on multiple metrics, such as price to earnings and price to book value. The upside to Federal Express can outweigh the downside in the near future.
Federal Express made a $4.8 billion acquisition of TNT Express to give it a presence in Europe. Not long after the deal went through, TNT got hit with one of the worst cyberattaks ever, yclept NotPetya. After all the delays and costs, ongoing pressure pertaining to the European project resurfaced in Italy with attention to its national budget and continental guidelines.
Currently, it seems that each thing is now in the past. Some commentators on the stock may have missed the significance of Europe to the company. There are other considerations, but they might not be as central.
There has been consistent discussion on trade relations with China. It is a sensible international concern and does matter. If trade in Asia slows down, so does the company’s business, and its financial results.
Another issue is the high capital expenditures FedEx currently makes, and is scheduled to be responsible for well into the future; largely because it buys aircraft. Though the stock reports a profit–and is remarkably inexpensive at under 10x its current-year price to earnings ratio–it is essentially borrowing to pay its deliberately small dividend. A company that borrows to pay its dividend may almost be like a driver who collides with the rear end of a different vehicle: there might be an instance in which the party is not in trouble, but it’s usually not the case.
While all the consensus estimates and guidance indicate future acceleration, my intent is not to portray FDX as a growth stock currently. The onus probably should be on value. Again, the price to earnings multiple is low, and this is after several downgrades and lowered estimates pursuant to its recent quarterly announcement for the Second Quarter of 2019 that ended November 30th. While there are different ways of pursuing value-oriented investing, to me it makes sense that heed should be paid to metrics that specifically use the term: book value and tangible book value.
Heading into the 2016 presidential election, with Democrats who sought to dismantle the largest financial institutions leading in the polls, Bank of America shares were trading at less than their tangible book value, which is similar to liquidation value in the event of a bankruptcy. The company was not bankrupt, however. It was solidly profitable and paying dividends. Further, it was buying back all the stock it could–which in hindsight was prudent action on behalf of investors–because it then doubled.
Given the steep descent of the share price, some sort of improved proposition to FDX investors should be evident.
FedEx is not trading at an absurdly low valuation like Bank of America was. However, it is historically low on Book Value, or shareholder’s equity, at just over 2x $19.2 billion. Perhaps $150 can serve as an indefinite floor for the share price. If not, exactly 2x shareholder’s equity should be interesting, and that would be at about $147.82.
During the past quarter, the company refinanced some debt. Rates appears to be much better, as to slightly lower interest payments; though liabilities have gone up:
we issued $1.25 billion of senior unsecured debt under our current shelf registration statement, comprised of $400 million of 4.20% fixed rate notes due in October 2028, and $850 million of 4.95% fixed-rate notes due in October 2048. Interest on these notes is paid semi-annually. We used the net proceeds to redeem the $750 million aggregate principal amount of 8.00% notes due January 15, 2019, and for general corporate purposes.Fuel is also a significant cost to FedEx. In a given quarter it could be roughly 5% of revenues. The corporation passes fuel surcharges on to customers. However, the price of oil has plummeted recently. Amid the situation, Qatar has left OPEC. This is a company that should fare better with lower energy prices.
Another issue is the advent of Amazon.com, with its newer venture Prime Air, and everything from a fleet of airplanes to delivery drones, to an entrepreneurial platform for independent delivery businesses. When this type of headline(s) surfaces, the share price of an affected company can really dive. FDX has been plummeting ever since. However, once the stock finds support it can eventually regain all of its losses.
It is borrowing to pay the dividend, but the distribution is small and the interest rate is lower than before. Fuel prices are cheaper, news pertaining to the Italian budget in Europe has been positive, and the stock is at an enticing valuation on multiple metrics, such as price to earnings and price to book value. The upside to Federal Express can outweigh the downside in the near future.