Time to 'Buy the Dip' on FedEx (FDX) - Barron's
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FedEx (NYSE: FDX) shares are a little higher today, following a bullish article in Barron's urging investors to "buy the dip." Shares are down 1.3% in early trading today.
Barron's notes that FedEx recently fell 95 from their 52-week high of $98.52 in mid-February, just as tensions in North Africa and the Middle East increased and investors became worried that oil supplies from the region would be cut off. Concerns sent crude prices north of $100 per barrel, leading investors to exit logistics companies, which rely heavily on petroleum (though many, such as United Parcel (NYSE: UPS) has begun employing natural gas vehicles).
Analysts note that FedEx should improve over the next 12-months on a recovery in domestic pricing, yield improvements, lower CapEx, and international express volume increases upon a continued global recovery.
Shares of FDX are going for a forward P/E of 14x FY12 EPS estimates, cheaper when compared to UPS at 15x. Barron's also notes that FY12 and FY13 should sees FedEx producing about $4 - $6 per share in free cash flow, paving the way for a potential dividend hike or stock buybacks. FedEx currently pays out a $0.12 quarterly dividend, with a 0.5% yield. Comparably, UPS dolls out $0.52 per quarter, with a 2.9% yield.
One potential downside is FedEx's surcharge, which, while priced into shipping costs, adjusts with a six-to-eight week lag, so rapidly rising fuel prices could be a hit to profitability. But analysts contend that businesses will still ship, even with increased fuel prices.
Enough with the negatives though, FedEx has been making some smart moves as well. A good portion of CapEx in 22011 has been devoted to a major overhaul of their trucking division, and acquiring better suited aircraft.
FedEx has also aimed at improving yield through an adjustment to sale-force compensation and lowering incentives to trade down to ground shipping.
International-express should also provide some topline improvement for FedEx. The high-margin business is positioned for a substantial price recovery in FY12, according to one analyst. DHL, being a 'fierce' competitor at the time, was willing to discount prices in order to gain some market share. The exit of DHL from the U.S. domestic market left FedEx locked in to one-to-three year pricing contracts. This will be the first year for FedEx to reap profits without DHL in the picture, following the 2009 - 2010 recession.
Barron's notes that FedEx recently fell 95 from their 52-week high of $98.52 in mid-February, just as tensions in North Africa and the Middle East increased and investors became worried that oil supplies from the region would be cut off. Concerns sent crude prices north of $100 per barrel, leading investors to exit logistics companies, which rely heavily on petroleum (though many, such as United Parcel (NYSE: UPS) has begun employing natural gas vehicles).
Analysts note that FedEx should improve over the next 12-months on a recovery in domestic pricing, yield improvements, lower CapEx, and international express volume increases upon a continued global recovery.
Shares of FDX are going for a forward P/E of 14x FY12 EPS estimates, cheaper when compared to UPS at 15x. Barron's also notes that FY12 and FY13 should sees FedEx producing about $4 - $6 per share in free cash flow, paving the way for a potential dividend hike or stock buybacks. FedEx currently pays out a $0.12 quarterly dividend, with a 0.5% yield. Comparably, UPS dolls out $0.52 per quarter, with a 2.9% yield.
One potential downside is FedEx's surcharge, which, while priced into shipping costs, adjusts with a six-to-eight week lag, so rapidly rising fuel prices could be a hit to profitability. But analysts contend that businesses will still ship, even with increased fuel prices.
Enough with the negatives though, FedEx has been making some smart moves as well. A good portion of CapEx in 22011 has been devoted to a major overhaul of their trucking division, and acquiring better suited aircraft.
FedEx has also aimed at improving yield through an adjustment to sale-force compensation and lowering incentives to trade down to ground shipping.
International-express should also provide some topline improvement for FedEx. The high-margin business is positioned for a substantial price recovery in FY12, according to one analyst. DHL, being a 'fierce' competitor at the time, was willing to discount prices in order to gain some market share. The exit of DHL from the U.S. domestic market left FedEx locked in to one-to-three year pricing contracts. This will be the first year for FedEx to reap profits without DHL in the picture, following the 2009 - 2010 recession.
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