FDX Fundamental Research Investment Analysis, FedEx Corp.

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The Razor's Edge

2-Year Price History

Recent Price
(12/3/2008)
$70.08
52-Week Price
$53.90 - $99.46
Market Capitalization
$21.8 Billion
Dividend Yield
0.60%
Most Recent Dividend
$0.40

About FedEx Corp.

FedEx Corporation is considered to operate in the Services sector. They specifically operate in the Air Delivery/Freight Services business segment contained within the Transportation industry.

The Company provides a portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand.

Ockham's Rating

The rating for FedEx Corporation (FDX) is unchanged this week as we reaffirm our Undervalued rating. We have maintained this position since it was downgraded to this rating in the report written on 11/10/2008. FDX had been rated Greatly Undervalued before 11/10/2008. While this is a reaffirmation of our Undervalued rating, we would like to highlight some of the important changes in price and earnings expectations for FDX.

Starting with the basics, the price of FDX rose from $60.91 as of 11/22/2008 to a price of $70.65 as of 11/29/2008. This increase does reduce the attractiveness of FDX, but an increase of 15.99% is not substantial enough to warrant a downgrade at this time.

Also, there have been no meaningful adjustments in earnings expectations to report in the last week.

FDX Stock Evaluation

In this week's report, we are reiterating our Undervalued rating on FDX. In the last week there has been no revisions made to earnings expectations, but our valuation has obviously been influenced by the increase in price of 15.99%. While that price increase has not caused a downgrade this week, we will continue to closely monitor the fundamentals in case a future change in rating is warranted. The complete fundamental analysis of FDX follows below.

FDX Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, FDX the high and low end of the Price to Sales per share ratios are 1.00x and 0.69x respectively.

Notice that FDX's current Price to Sales per share ratio is 0.53x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $70.65, FDX is 37% below where we would expect to see it. This will beneficially factor into our final analysis of FDX as it is not often that this stock sinks to these levels.

FDX Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. FDX is significantly below its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from FDX. For example, FDX's Cash Earnings ratio per share has fluctuated between 7.21 and 10.40 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where FDX is with respect to prior business periods.

So with FDX's current price (latest close of $70.65) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, FDX is 29% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with FDX.

FDX Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for FDX to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for FDX is $0.44 producing a current dividend yield of 0.62%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from FDX against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from FDX over previous years was 0.82% while the lowest dividend yield was 0.00%. It's hard not to notice that FDX pays a current dividend yield that is 51.22% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.

Peer Comparison

:

FedEx Corp. Industry Grouping

(12/3/2008)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding FDX) 6.42 4.62 » 13.74 1.53 0.80 » 11.06 9.11% 12.64%
*10 year range does not include current year values
Burlington Northern Santa Fe Corp. BNI $24.8 Billion $72.38 6.84 3.99 » 11.34 1.35 0.81 » 9.49 11.97% 13.66%
Union Pacific Corp. UNP $24.3 Billion $48.07 6.41 4.30 » 12.51 1.33 0.72 » 9.19 5.45% 9.06%
FedEx Corp. FDX $21.8 Billion $70.08 6.27 4.71 » 12.07 0.53 0.50 » 4.98 11.04% 12.96%
Norfolk Southern Corp. NSC $17.2 Billion $46.36 7.08 5.31 » 12.72 1.69 0.74 » 11.08 8.51% 12.38%
Canadian National Railway CNI $16.0 Billion $34.27 6.27 5.44 » 15.74 2.00 1.24 » 17.09 15.42% 17.64%
CSX Corp. CSX $13.6 Billion $34.54 5.51 4.08 » 16.37 1.24 0.51 » 8.43 4.23% 10.46%
Ockham's Rating: UnderValued
Current
Rating on:
FDX

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Key Fundamentals

FDX - FedEx Corporation Fundamentals
Price (12/3/2008) $70.08
Volume (12/3/2008) 2.8 Million
10 Day Average Volume 3.3 Million
13 Week Price Range $53.90 - $96.99
52 Week Price Range $53.90 - $99.46
LTM Revenue $38.7 Billion
 
Shares Outstanding (05/2008) 311.2 Million
Market Capitalization $21.8 Billion
Shares Held By Institutions 252.1 Million
Insitutional Holders 905
% Shares Held By Institutions 81%
Earnings Per Share (EPS) $3.60
P/E Ratio 21.50
Book Value Per Share $48.64
 
Gross Margin 49.20%
Quarterly Dividend 0.44
Dividend Yield 0.60%
Beta 0.66
Fiscal Year Ends May