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Analyst Blog

Leading freight carrier, FedEx Corporation announced this Tuesday that it is repurchasing 32 million of outstanding shares of its common stock in addition to its remaining 7.4 million shares repurchase authorization. These shares represent 10% of its 317 million shares outstanding.

The market responded favorably to this news and share price increasing 2.7% from its opening on Tuesday. Since then, the stock has been climbing.  

Aside share buyback, in Jun 2013, FedEx also raised its dividend payment by a penny to 15 cents. We believe that the company’s focus on increasing investor return is backed by its strong financial strength from operational efficiency. Further, to fortify investors’ value the company is also aiming to enhance its profitability though superior cost structure.    

FedEx has set a 2016 end target of $1.6 billion in incremental profit at FedEx Express and 2020 target of 30% improvement in fuel efficiency of its fleet. Other than gaining $600 million in cost savings through 2016 from the Voluntary regiment plan, the company expects these profits to arise from infrastructural developments like aircraft modernization, aircraft maintenance processes, fuel consumption, as well as increased pick-up and delivery services.

The company is also taking initiatives to reduce the Trans-Pacific capacity with effect from Apr 1. FedEx is aggressively working on plans to curb over-capacity from Asian lanes to adjust traffic in lower yield networks. In this context, it expects to remove some of its networks between the U.S. and Asia in July. In fiscal 2014 and beyond, the company expects to ramp up capital spending in the Ground segment in order to meet the growing demand.

Based on higher demand assumption, FedEx anticipates a higher return on invested capital (ROIC) from such spending. In the Freight segment, management expects to further invest in technology to upgrade network and equipment and automation planning to enhance customer service levels in fiscal 2014.

We believe these initiatives will lead to greater operational efficiencies, generating significant long-term synergies, supporting international business growth and driving profitability. These will also give the company advantage over other players like United Parcel Service, Inc. , Expeditors International of Washington Inc. and Radiant Logistics, Inc. .

FedEx currently has a Zacks Rank #3 (Hold).

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