FedEx (FDX, Financial) is a leading operator in the courier and logistics business worldwide which has grown manifold in recent years with emergence of e-commerce. Its main rivals are TNT Express (TNTE, Financial), Deutsche Post AG and United Parcel Service Inc. (UPS, Financial) but FedEx stock is a better option if you are looking at short to mid-term returns.
An investor would first consider returns before he invests in a stock. In this respect, the figures for UPS are19.6%, for TNT it is 3.70%, for Deutsche Post it is 9.40% and FedEx comes in second at 14.2%. So why does it seem wise to put money in FedEx?
Share Buy Back
Over the last year and according to figures available for October 2014, FedEx management repurchased 15 million shares accounting for 5% of FedEx stock. The obvious inference is that FedEx has something up its sleeve and is either purchasing the shares to benefit by rise in stock prices or other reasons that could lead to an increase in its value.
FedEx eyeing to bag Genco to gain e-commerce edge
Credence to the above is fuelled by news in December of FedEx planning to buy Genco, possibly as part of its plans to foray into the ecommerce space. Genco is a logistics firm handling product returns with annual sales of $ 1.6 billion and a throughput of 600 million products in a year. FedEx is into logistics and Genco is into reverse logistics. The combination makes sense and also renders FedEx more “complete” as a logistic service provider.
The logic is simple. Ecommerce is growing. FedEx will handle more product shipments. Returns are also growing in proportion and Genco handles returns. With Genco in its ambit, FedEx will have a larger share of the pie. FedEx handles around 290 million packages during Christmas season, it must be noted. Way back in 2012, FedEx smartly went in for 18 used Boeing (BA, Financial) 757 jets, which are more fuel efficient than previous generation cargo carriers. There is nothing surprising in this except that even at that time FedEx had long range plans. Underscoring this fact is that it paid more for the used jets than the price they would have fetched if sold to passenger operators. In addition to better fuel efficiency, one-third less than older 727s; the 757 also carries 20% more freight.
Technical Analysis
Such activities have not always resulted in a company performing better and for any inexplicable reason stocks could nosedive or remain stagnant but FedEx is still a good option if you go by the technical analysis, which would give a complete insight into the investment suitability of the company rather than simply considering the last quarter performance.
Since April 2014 the stock’s price movement has been upwards. The charts show a consistent head and shoulders formation, with each dip also consistently higher or equal to the previous low. From April to July the price movement was relatively slow but upwards. Then, in July-August there was a decided bump up. Refer to the chart and you will notice that if you draw a straight line from the highs of April to the highs of July, the indicators are that the stock will rise. Consider the bottoms. Even if you draw a line here, the chart never goes below the trend line. This is quite significant and would have signaled a much higher leap in prices which the stock eventually showed. After taking a periodic dip in October the prices continued to rise steadily without stopping for breath. Then you see prices dipping but a smart recovery and building up of another head and shoulders pattern. Apart from FedEx’s expansion programs and management buying back shares even the chart itself says go ahead, buy FedEx and you will never regret your decision.
How high will it go?
This is venturing into the realm of prediction. However, you can expect a handsome return if you dispose off the stock by mid 2015 or gain even more if you keep holding on to it. Going by the recent activities analysts feel ‘FedEx is gold’.
Should you instead opt for UPS that shows higher returns? No. FedEx is active in diverse spheres and has shown to be the most dynamic in comparison to UPS, TNT and Deutsche, not only in the US but also globally which helps the company to spread the risk factors across a wider realm and thus assure better returns in its peer group.
