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Here's Why You Should Retain FedEx (FDX) in Your Portfolio

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FedEx Corporation’s (FDX - Free Report) efforts to reward shareholders through dividends and buybacks are encouraging. FDX's liquidity position is also impressive. However, concerns arise from volume-related challenges impacting the FedEx Express segment.

Factors Favoring FDX

In the second quarter of fiscal 2023, FedEx launched DRIVE to boost long-term profitability, aiming for $1.8 billion in savings this year and $2.2 billion by 2025. Measures like flight cuts and staff reductions show commendable cost-control efforts, countering revenue challenges.

In April 2023, FDX increased its quarterly dividend by 10% to $1.26 per share ($5.04 annually), affirming its commitment to shareholder value. Dividends, serving as a hedge against economic uncertainty, make the company a dependable investment. Additionally, FedEx actively repurchased $1.5 billion worth of shares in fiscal 2023 and aims to repurchase $2.5 billion in fiscal 2024, further enhancing shareholder returns.

FDX’s liquidity is strong, with a current ratio (a measure of liquidity) of 1.31 at the end of the third quarter of fiscal 2024, surpassing its industry average of 1.14. This ratio indicates that the company's assets can cover its debts due by the year-end.

Key Risks

Declining shipping demand, geopolitical uncertainty and higher inflation have affected FedEx's revenues, which dropped 4% in the first nine months of fiscal 2024. The Express unit experienced a 6% decline, and FedEx Freight revenues decreased by 8%. FedEx anticipates a low-single-digit decrease in 2024 revenues compared to 2023.

Due to high inflation and weak demand, transportation companies like FDX face volatile stock prices. FDX shares, with a beta of 1.20, are more volatile than the overall market, making them unsuitable for investors uncomfortable with significant day-to-day fluctuations.

In 2023, capital expenditures reached $6.1 billion. FDX projects approximately $5.4 billion for 2024, primarily due to weakened demand, potentially impacting its long-term growth.

Zacks Rank

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

Stocks to Consider

Investors interested in the broader Transportation sector may consider stocks like GATX Corporations (GATX - Free Report) and SkyWest (SKYW - Free Report) . Each stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.

The Zacks Consensus Estimate for 2024 earnings has been revised 5.17% upward over the past 90 days. The company has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have rallied 22% in the past year.

SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 213% in the past year.

SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.

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