What is Fedex?
FedEx Corporation, originally Federal Express Corporation, is an American multinational conglomerate holding company focused on transportation, e-commerce and business services based in Memphis, Tennessee. The name "FedEx" is a syllabic abbreviation of the name of the company's original air division, Federal Express, which was used from 1973 until 2000. FedEx today is best known for its air delivery service, FedEx Express, which was one of the first major shipping companies to offer overnight delivery as a flagship service. Since then, FedEx also started FedEx Ground, FedEx Office (originally known as Kinko's), FedEx Supply Chain, FedEx Freight, and various other services across multiple subsidiaries, often meant to respond to its main competitor, UPS. The company is the fifth largest American-headquartered employer globally, with 547,000 employees. FedEx is also one of the top contractors of the U.S. government and assists in the transport of some United States Postal Service packages through their Air Cargo Network contract.
Key Stats (as of June 30, 2024)
Next earnings report Sept 17, 2024
Average Volume (30D) 2.05M
Market capitalization 73.78B
Dividend yield (indicated) 1.84%
Price to earnings Ratio (TTM) 17.13
Basic EPS (TTM) 17.21
Shares float 224.28M
Beta (1Y) 0.82
52-Week High 302.41
52-Week Low 224.69
Daily Average True Range (ATR) 7.49
Quick Dashboard
Oscillators: Neutral
Moving Averages: Strong Buy
Earnings
Q3 '23 were mixed with earnings coming in +11.53% higher than expected and revenue coming in under expectations at -1.15%
Q4 '24 both earnings and revenue beat expectation with earnings coming in +1.34% higher than expected and revenue coming in 0.26% higher than expected.
It should also be mentioned that the price surged significantly post earnings, gapping up the following day at market open almost 39 points or +15.1%. FedEx is in the midst of a $4 billion cost-cutting effort, including the consolidation of its air and ground shipping businesses, which could've been the catalyst for the move to the upside the following day after reporting earnings on Tuesday June 25th, 2024. While the company hiked its quarterly dividend by 10% earlier this month, investors do foresee headwinds, particularly after the company lost its U.S. Postal Service contract to rival United Parcel Service in April.
Analyst forecast
Analyst rating: Buy
28 analysts offering 1 year price forecasts for FedEx Corporation have a max estimate of 359.00 and a min estimate of 215.00.
Something new
In addition to the usual chart based technical analysis I provide I'm going to do something a little different and provide an intrinsic valuation of FedEx using DCF (Discounted Cash Flow Analysis) and as a bonus I'll also be providing DCF analysis with relative valuation techniques.
What is DCF?
Discounted Cash Flow (DCF) analysis is a valuation method used to estimate the value of an investment based on its expected future cash flows. It involves projecting a company's free cash flows over a period (typically 5-10 years), then calculating a terminal value to represent all cash flows beyond the projection period. These future cash flows are then discounted to their present value using an appropriate discount rate, usually the weighted average cost of capital (WACC). The sum of these discounted cash flows and the discounted terminal value provides an estimate of the company's intrinsic value. DCF is widely used in finance for valuing businesses, projects, and assets, as it considers the time value of money and provides a fundamental, forward-looking approach to valuation. Some well known proponents of DCF are but not limited to: Warren Buffet, Charlie Munger, Benjamin Graham, Aswath Damodaran, Joel Greenblatt, Seth Klarman, Michael Mauboussin, Bruce Greenwald, Bill Ackman, and Howard Marks.
DCF of FedEx:
Current Stock Price: $299.84 (as of June 28, 2024)
Calculated Intrinsic Value: $221.16 per share
Valuation Method: Discounted Cash Flow (DCF)
Key Inputs:
• 10-year cash flow projections (2024-2033)
• Discount rate (WACC): 7.7%
• Terminal growth rate: 2.4%
• Present Value of 10-year Cash Flows (PVCF): $27 billion
• Present Value of Terminal Value (PVTV): $41 billion
Calculation Summary:
Enterprise Value = PVCF + PVTV = $68 billion
Equity Value = Enterprise Value - Net Debt = $54.30 billion
Intrinsic Value per Share = Equity Value / Shares Outstanding = $54.30 billion / 245,524,087 shares = $221.16
Market Analysis:
• Current market price ($299.84) is 35.6% above my calculated intrinsic value
• Market cap: $73.61 billion (based on current stock price)
Key Financial Metrics:
• EPS: $17.37
• P/E Ratio: 17.26 (based on current stock price)
• Revenue: $87.514 billion
• EBITDA: $10.393 billion
• Dividend Yield: 1.83% (based on current stock price)
Conclusion:
Based on my DCF analysis, FedEx appears to be significantly overvalued at its current market price. The stock is trading 35.6% above my calculated intrinsic value. However, investors should consider that DCF valuations are sensitive to input assumptions and should be used in conjunction with other valuation methods and qualitative factors when making investment decisions.
Note: This valuation is based on projections and assumptions that may change. Always conduct your own due diligence before making investment decisions.
Relative Valuation of FedEx
Combining DCF analysis with relative valuation techniques is an excellent approach to get a more comprehensive view of a company's value. Here's how to approach this:
DCF Valuation (which we've already calculated): Intrinsic Value: $221.16 per share
Relative Valuation: Let's use the Price-to-Earnings (P/E) ratio as our relative valuation metric.
Current FedEx P/E ratio: 17.26 (based on the current stock price of $299.84 and EPS of $17.37)
To get a more comprehensive view, we should compare this to:
a) The industry average P/E ratio
b) FedEx's historical P/E ratio
c) The P/E ratios of FedEx's main competitors
For this example, let's assume:
• Industry average P/E ratio: 18.5
• FedEx's 5-year average P/E ratio: 16.0
• Main competitor (UPS) P/E ratio: 19.2
Using these P/E ratios, we can calculate implied stock prices for FedEx:
a) Industry average implied price: $321.35 (17.37 * 18.5)
b) Historical average implied price: $277.92 (17.37 * 16.0)
c) Competitor-based implied price: $333.50 (17.37 * 19.2)
Combining the Valuations:
Now we have multiple valuation points:
• DCF Valuation: $221.16
• Current Market Price: $299.84
• Industry Average Implied Price: $321.35
• Historical Average Implied Price: $277.92
• Competitor-Based Implied Price: $333.50
To synthesize these, we could:
a) Take an average of all valuations: $290.75
b) Weight the valuations based on confidence in each method
For example, if we assign weights:
• DCF Valuation: 40%
• Current Market Price: 20%
• Industry Average Implied Price: 15%
• Historical Average Implied Price: 15%
• Competitor-Based Implied Price: 10%
Weighted Average Valuation:
(221.16 * 0.4) + (299.84 * 0.2) + (321.35 * 0.15) + (277.92 * 0.15) + (333.50 * 0.1) = $274.31
Conclusion:
This multi-faceted approach provides a more robust valuation by considering both the company's intrinsic value based on projected cash flows and its value relative to the market and peers. It also highlights the importance of considering multiple perspectives when valuing a company, as different methods can yield different results.
Technical Analysis
Baseline analysis starts with a trendline starting at the beginning of June 2023 connecting to the recent lows in June 2024. A pattern I've noticed occur is when the 1D RSI was over 80 after earnings, a pullback down to the trendline occurs, it's happened twice so far. The first one took approximately 2 months to reach back down to the trendline and the second time it took approximately a little more than 2 and a half months.
Bearish Bias:
Normally when I post technical analysis I like to analyze both sides of the trade, the long and short. For this trade I'm only going to focus on it as if it were currently at the beginning of a potential short. There are a few reasons for this:
The 1D RSI level is over 80, indicating that the price is in overbought territory
The price is currently over 25 points above the 9 EMA
There've been 3 consecutive 1D green candles after a big gap up after earnings
Could this be the top? In my opinion it could be or it's certainly getting close. There are levels higher than it's currently trading that could potentially be retested so it's worth exercising caution if taking a short position. As always the market can stay irrational longer than you can stay solvent so please be careful and practice your own due diligence before entering a position.
Potential higher levels:
Previous high from December 2020 at $305.66
Above that there is the ATH (All time high) with confluence from the -0.3 fib at around $320
Above that the -0.5/-0.618 sell zone between $332.15 - $339.17
Retracements:
Drawing a fibonacci retracement from the start of the move June 14, 2024 at $242.92 to the recent high of $302.84, the total move was $59.92. A 30% retracement is $17.98 down to $284.86, 50% retracement is $29.96 down to $272.88. The 50% retracement level is notable as a confluence level with the 0.5 fib.
Gap fill/0.618 confluence at $265.64
0.786/Pivot Point confluence at around $255.65
Gap fill level at $252.68
Key Levels
Resistance:
Previous high from December 2020 at $305.66
ATH/-0.3 confluence $320
-0.5/-0.618 sell zone between $332.15 - $339.17 (extreme)
Support:
Trendline Support
30% retracement $284.86
50% retracement/0.5 fib $272.66 - $272.88
Gap fill/0.618 confluence at $265.64
0.786/Pivot Point confluence at around $255.65
Gap fill level at $252.68
DCF:
Calculated Intrinsic Value: $221.16 per share
Relative Valuation:
Weighted Average Valuation: $274.31 per share
Time Frame Validity:
2 - 3 months
Disclaimer:
The purpose of QuestITM, this post, and all content provided on questitm.substack.com is for entertainment and educational purposes only. Trading and investing carry a high level of risk and can result in significant financial losses. The technical analysis and opinions presented on this page do not guarantee success and should not be construed as financial advice. Do not invest more money than you can afford to lose, and always consider where your stop loss orders will be before entering positions and commit to them. Past performance is not indicative of future results. It is strongly recommended to consult with a licensed financial advisor or other professional before making any investment decisions. QuestITM and its contributors are not liable for any financial losses or damages that may occur as a result of using the information provided.