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FedEx Jumps 31% in a Year: What's Behind the Rally?

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Shares of FedEx Corporation (FDX - Free Report) have surged 31.9% in a year, outperforming the industry’s 21.1% increase.



 

Reasons Behind the Price Rise

Strong growth of e-commerce is a huge positive for FedEx. To this end, the company acquired P2P for £92 million in March, thereby strengthening its e-commerce portfolio.

The company’s impressive performance during the holiday season is another uptick. This was attributable to expanded package volumes. Notably, the company hired more than 50,000 seasonal workers to meet the swelling demand.

The new tax law, which reduces the corporate tax rate significantly, has been aiding FedEx for a while now. Moreover, the lowered tax rate was the primary reason for the company’s lifted projection for fiscal 2018 earnings. The company anticipates earnings per share (excluding TNT Express integration expenses and certain other items) in the range of $15-$15.40, higher than the previous forecast of $12.70-$13.30 in the period. Other factors responsible for this upside were foreign tax benefits from international corporate structure and a better operating performance.

The company’s initiatives to reward shareholders through dividend payments and share buybacks are also encouraging. In June 2017, the company raised its quarterly dividend by 25% to 50 cents a share (or $2 annually) from 40 cents (or $1.60 annually). We believe that this dividend hike not only highlights FedEx’s commitment to create value for shareholders but also stresses the company’s strong financial position and confidence in its business prospects.

In the wake of the new tax law, we expect a drive in such investor-friendly activities. Huge savings from the slashed tax rate will also likely boost cash flow. Thus, the company will have more cash in hand to fund these moves.

The company’s decreased capital expenditure for fiscal 2018 will further contribute to the positive scenario. This is because lesser capital expenses lead to more free cash flow (difference between operating cash flow and capital expenses). Notably, capital expenses are projected at $5.8 billion in fiscal 2018, down $100 million from the earlier guidance.

Zacks Rank & Key Picks

FedEx carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. (SKYW - Free Report) , Expeditors International of Washington, Inc. (EXPD - Free Report) and GATX Corporation (GATX - Free Report) . While Expeditors sports a Zacks Rank #1 (Strong Buy), SkyWest and GATX carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of SkyWest, Expeditors and GATX have rallied more than 67%, 36% and 22%, respectively, in a year.

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