FedEx (NYSE:FDX) could be a contender for defensive stock selection as the economy cools following continued Federal Reserve interest rate hikes. As a transportation and logistics company, FedEx provides an essential service by delivering all kinds of commodities and products that people just can’t live without. Additionally, the company has also made significant investments in other sectors that can withstand a downturn, such as healthcare, which further strengthens its moat against volatility. But how do the fundamentals of the business fare otherwise? Let’s explore the pros and cons of this company as a defensive stock pick.
FedEx Dividend Analysis
Arguably, a big part of what makes a stock attractive in an economic downturn is its dividend. Investors can still get compounded returns from companies that pay dividends, even if their stock yields tend to decline. In the case of FedEx, its dividend has some advantages over the industrial sector. FedEx’s dividend is considered safe and well above the industry median. The company pays 25.84%. His yield, however, is slightly below the industry median of 1.58%, reaching 1.46%, his annual FWD payout being $4.60. The five-year dividend growth rate is 14.87% and is supported by two consecutive years of growth.
When comparing its FWD dividend yield to that of peer companies in the same industry, it is more or less even. CH Robinson Worldwide (NASDAQ: CHRW) has a yield of 2.02%, while FedEx’s yield is 1.97%. Other companies like Washington Expeditors International (NASDAQ: EXPD) pay 1.31%.
Mixed valuation and analyst reviews
A natural question to ask is how competitive FedEx’s valuation is at its current levels. On a forward-looking basis, its GAAP P/E ratio of 10.55 is significantly below the industry median of 18.01. Other valuation ratios are also down, notably the Price/Sales at 0.62 against 1.32. One area where the company doesn’t beat the industry median is its Price to Book ratio of 2.43 vs. 2.51.
Wall St’s view for FedEx, however, is not so straightforward regarding its near-term outlook. The company received nearly an equal number of upward and downward revisions to its revenue estimates, with 13 upward revisions and 11 downward revisions. Its EPS estimates were also controversial, as it received 15 upward EPS revisions and 10 downward EPS revisions in the last three months.
Further polarizing investor sentiment, the company received 16 strong buy and ten hold ratings, as well as four buy ratings. It should be noted that analysts have consistently overestimated the company’s consensus price target over the past five years and it currently shows a 27.4% upside from the market beat consensus price target.
Growth rate and profitability
FedEx’s FWD revenue growth estimates are below the industry median and also do not top the industry in margins or profitability. The company’s year-over-year revenue growth was -36.27% different from the industry at 11.38%, which is above its 10-year average of 8.16%. Its FWD revenue growth is also less optimistic at 6.54% compared to the industry median of 10.62%.
In terms of profitability, its gross margin is 25.04%, while the sector is doing well at 29.62%. After deducting expenses, it also trails with an EBITDA margin of 10.67%, and the sector has an EBITDA margin of 13.02%.
Overall, the company’s share price has contracted -15.53% over the last twelve months, which is slightly higher than the sector’s contraction of -14.63%. FedEx also doesn’t beat the broader market over the long term, as its five-year return is 11.35% and the S&P 500 has returned 65.13%.
FedEx is part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and led by entrepreneurs.
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