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FedEx, Global Recession or just poor management?

First Netflix, now FedEx, are dramatic sell-offs the new norm?


It seems that dramatic sell-offs are becoming more popular and with FedEx following Netflix’s dire slump, we could see this becoming the “new norm” for the foreseeable future. FedEx, now warning of office closures and parked aircrafts[i] after the sales shortfall, seems to warrant some attention from long-term investors. Sharp declines in FDX stock are not uncommon, an approximately 20% decline in one day is but, this may be due more current trading patterns than FedEx itself.


The Key Statistics are becoming more interesting and long-term investors may see a possible point of entry, if they are aware and understand that there is more downside potential associated with FDX in the near-term. FedEx, warning that its sales shortfall is due to a decrease in global economic activity (pointing to a recession)[ii], would be entirely credible if we ignore FDX’s history of raising earnings targets only to cut them shortly after (multiple times)[iii]. There are structural and business specific inefficiencies associated with FDX and its leadership. Particularly in the FedEx Ground unit which employs about 6,000 independent contractors to process packages, this division of the company has been dealing with declining profit margins since 2012. FedEx’s Express unit never enjoyed large margins (averaging 5.7% since 2008)[iv] but was buoyed by continuous global economic trade. With Amazon is making more of a splash in logistics and UPS is growing its margins, FedEx is being squeezed, but there could be hope…


For a long-term investor, FedEx, at around $163 could be an initial entry for a strategy that layers in multiple purchases over a well-defined period. Average analyst estimates are setting a target price of about $222.92; the current Enterprise Value hovering around $59 Billion with a Market Cap of $42.3 Billion seem interesting and the attached Key Stats[v] can tell a compelling story but, the real value will come from a proper restructuring of FedEx. Specifically, a restructuring that would focus on cutting inefficiencies and shedding non-performing divisions.


For the disciplined investor that understands the dramatic volatility associated with this type of activity, this may be ideal, for speculators that hope to turn a quick profit, this could be unpleasant. In your case, let’s talk, this is by no means a recommendation to buy-or-sell FDX, only a recommendation to see how this type of volatility and possible opportunity can play into your financial strategy.


52 Week Range: $155.00 - 266.79

Avg Daily Vol (3 Mo): 2,607,481.3

Basic Shares (M): 259.9

Market Cap (M): 42,339

Dividend Yield: 2.8%

First Trading Date: 12 Apr '78

FD Shares Out (M): 260.3

FD Mkt Cap (M): 42,409

EV (M): 58,941

WACC: 6.3%

Float: 91.7%

Institutional: 72.8%

Top 10 Inst Hldrs: 33.0%

Analyst Coverage: 29

Avg Rating: Overweight (1.56)

Target Price: $229.92

LT Growth Rate: 10.2%

Source: FactSet (9/20/22)



Tim Marian

Portfolio Manager

Investment Management | Shadowbrook Private Wealth

CERTIFIED FINANCIAL PLANNER®, Certified Investment Management Analyst®

646-884-4874

Tim.Marian@shadowbrookwealth.com

ShadowbrookWealth.com



We, Tim Marian and Wayne Stoneback, declare that any and all views and opinions which are expressed in this report are our personal views, which are not influenced by any consideration received from any party or client relationship.


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[v] Source: FactSet 9/20/22



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