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FedEx (FDX) Takes Over P2P, Expands E-commerce Capabilities

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In a bid to strengthen its e-commerce portfolio, leading package delivery company FedEx Corporation (FDX - Free Report) recently announced the acquisition of U.K.-based P2P Mailing Limited for £92 million. The earlier P2P offered customers unique last-mile delivery options. The company, prior to being acquired, provided parcel delivery services to more than 200 countries.

P2P will operate under the FedEx Cross Border unit from now on. FedEx Cross Border operates under FedEx Trade Networks, Inc. (FTN), which has been operational since Mar 1. The decision is aimed at helping the company gain from the e-commerce boom.

With e-commerce growing by leaps and bounds, it is natural that FedEx is looking to tap the opportunity. In fact, the strong growth of e-commerce is a huge positive for the company. On the back of such exponential growth, FedEx did extremely well in the holiday season. In fact, the company had left no stone unturned to cash in on the opportunity, hiring more than 50,000 seasonal workers to meet the surge in demand. FedEx’s rival United Parcel Service, Inc. (UPS - Free Report) also saw an impressive holiday season.

E-commerce Growth Drives Stock

Shares of FedEx have done impressively well on rising e-commerce demand. The stock has gained 22.7% in a year’s time, substantially outperforming the 6.3% rally of the industry it belongs to.

Consequently, FedEx’s decision to boost its e-commerce portfolio through the P2P buyout seems to be a prudent one.

New Tax Law — Another Positive

The new tax law (Tax Cuts and Jobs Act), which slashes the corporate tax rate significantly, is a huge positive for this Zacks Rank #3 (Hold ) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The tax cut has primarily backed the company raised earnings projection for fiscal 2018. For the fiscal, the company anticipates earnings per share (excluding TNT Express integration expenses and certain other items) of $15-$15.40, higher than the previous projection of $12.70-$13.30.

Apart from the significant drop in corporate tax rate, the new law now allows these companies to deduct capital expenditures from taxable income in the year of occurrence. This aspect hugely favors FedEx as it incurs substantially high capital expenditures. The company’s annual tax bill will not be significantly lower, courtesy of the higher deductions.

The Tax Cuts and Jobs Act might also ramp up shareholder-friendly activities (dividend payments and buybacks) at FedEx. It is encouraging to note that transportation stocks like Union Pacific Corporation (UNP - Free Report) and Norfolk Southern Corporation (NSC - Free Report) have already announced dividend hikes this year.

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