The Razor's Edge

2-Year Price History

Ockham's Rating

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.