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FedEx (FDX) Scales 52-Week High: What’s Driving the Stock?

Zacks

Shares of Memphis, TN-based FedEx Corporation FDX touched a 52-week high of $191.84 on Nov 25, before declining marginally to close the day at $191.83. The package delivery company has performed impressively so far, gaining over 28% year to date. The stock has appreciated around 10% in the last 30 days.

Catalysts for the Surge

FedEx anticipates a highly successful holiday season this year. In order to meet the surge in demand, the company has hired more than 50,000 seasonal workers. It has added 19 fully-automated stations and four major distribution hubs since the last peak season, and projects capacity investment of $2 billion in its ground unit. Moreover, it has added 30 aircraft to its fleet since last year. Each of the four Mondays in the upcoming peak period is anticipated to be among the busiest in its history.

FedEx impressed in the first quarter of fiscal 2017 with better-than expected revenues as well as earnings. The top line and bottom line also expanded on a year-over-year basis. Strong sales at the company’s express, ground and freight divisions as well as the inclusion of results of TNT Express boosted the top line. The earnings beat, the fourth successive one, naturally lead to an appreciation in stock price.


We are positive on FedEx’s acquisition of TNT Express. The buyout – completed in May this year – significantly expanded the acquirer’s scale of operations, particularly in Europe. Following the completion of the deal, FedEx strengthened its position in the lucrative e-commerce business. The expansion of its capabilities enabled FedEx to compete more effectively with rivals like United Parcel Service Inc. UPS that boasts a significant European footprint.

The acquisition is expected to boost the company’s earnings in fiscal 2017 on an adjusted basis. The deal also offers substantial cost savings to FedEx, thereby driving long-term growth. Including the impact of the acquisition of TNT Express, the company expects fiscal 2017 earnings in the band of $10.85–$11.35 per share, on an adjusted basis. We expect FedEx’s strong product portfolio to support its guidance.

We are also impressed with the company's decision to reward shareholders through dividend payments and share buybacks. This June, the company raised its quarterly dividend by 60% to 40 cents a share (or $1.60 annually) from 25 cents (or $1 annually). We believe that the dividend hike not only highlights FedEx’s commitment to create value for shareholders but also underscores its strong financial condition and confidence in its business prospects. Moreover, a look at past records reveals FedEx’s stable dividend payment history. With respect to buy backs, the company repurchased 18.2 million shares in fiscal 2016 at an average price of $149.35. In the first quarter of fiscal 2017, the company bought back 1.4 million shares.

Zacks Rank & Other Stocks to Consider

FedEx currently carries a Zacks Rank #2 (Buy). Investors interested in the broader transportation space may also consider Copa Holdings SA CPA and USD Partners LP USDP, both of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The 2016 Zacks Consensus Estimate has increased 9 cents to $4.76 over the last month for Copa Holdings. The Zacks Consensus Estimate for the current year has surged 46.5% over the last month to $1.26 per share for USD Partners.

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