Loop Questions Why FedEx Shares 'Always Seem So Cheap'

Speaking before the U.S. Senate Tuesday, FedEx Corporation FDX CEO Michael L. Ducker reminded the Trump administration of its commitment to improve the infrastructure network in the country.

Ducker noted that while regular freight forwarding could take as long as a week, FedEx and its integrator competitors were reducing the door-to-door delivery times by 50 percent. Ducker emphasized the importance of a “sustained commitment to modernization” for U.S. businesses and consumers, especially given the growing e-commerce marketplace.

Results And Guidance

In March, FedEx had reported its adjusted non-GAAP basis revenue at $15 billion, representing 18.5 percent growth. The company recorded a 7.8 percent decline in its adjusted non-GAAP net income to $638 million.

Revenue was boosted by the TNT Express integration. The synergies associated with TNT Express are included in the Express group’s profit improvement target of $1.2 billion–$1.5 billion by fiscal year 2020, Loop Capital Markets’ Rick Paterson said in a report. He added that consolidating synergies from the TNT integration synergies with the improvements being made at Express allows the market to focus on one figure and offers FedEx the flexibility to push one if the other is falling short.

Paterson initiates coverage of FedEx with a Buy rating and a price target of $234.

FedEx guided to its FY 2017 adjusted EPS at $11.85–12.35. The company’s Q4 guidance of $3.80–$4.30 appears optimistic, the analyst mentioned, while adding that the three-year EPS guidance suggests a CAGR in the mid-teens.

FedEx Seems Cheap, As Always

The reason for FedEx trading at a significant discount to its large- and mid-cap peers has been unclear, Paterson noted. However, he explained that FedEx’s performance in terms of the three metrics that were important to a company’s valuation, namely ROIC, dividend yield and FCF, had been “spotty.”

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