A major acquisition in Europe is starting to pay significant benefits for this well-known growth stock.
This U.S. shipping company is also benefiting from the growth of online shopping. Its revenue and earnings beat the consensus estimate in each of the past two quarters. Plus revenue and savings from its acquisition should add up to $1.5 billion to the company’s income by 2020.
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FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages in the U.S. and 220 other countries. Its fleet of 170,000 trucks and 660 aircraft handle 14 million packages a day.
On May 25, 2016, the company completed its $4.9 billion acquisition of TNT Express NV. That Netherlands-based courier operates across Europe. The deal makes FedEx the second-largest courier on the continent after United Parcel Service.
To integrate the TNT operations, the company expects to spend a total of $1.4 billion over the next four years. In addition, higher spending on new planes and trucks will help FedEx profit from the popularity of online shopping.
However, savings from combining its businesses should add $1.2 billion to $1.5 billion to FedEx’s annual operating income starting in 2020. To put that in perspective, the company’s operating income was $5.4 billion for the fiscal year ended May 31, 2017.
In 2017, a cyberattack disrupted TNT’s computer systems. That, plus flooding due to Hurricane Harvey, hurt FedEx’s earnings last year.
Growth stocks: Per share earnings easily beat the consensus estimate
However, excluding costs to integrate TNT and the impact of changes to the U.S. tax code, the company’s earnings for the fiscal 2018 third quarter, ended February 28, 2018, jumped 62.6%, to $1.02 billion from $625 million a year earlier. Due to more shares outstanding, per-share earnings rose 61.7%, to $3.72 from $2.30. That easily beat the consensus estimate of $3.11.
Revenue in the quarter rose 10.2%, to $16.53 billion from $15.00 billion a year earlier. That also beat the consensus forecast of $16.18 billion.
In addition to the higher revenue, lower fuel costs and stronger volumes at its ground delivery businesses spurred FedEx earnings. That offset lower profits for the company’s air delivery operations.
Those results came in the wake of a positive fiscal second quarter in which strong demand for delivery services ahead of the holiday season pushed up revenue by 9.3%, to $16.31 billion from $14.93 billion a year earlier. That beat the consensus forecast.
The company’s shares are up 31% in the past year. FedEx pays a quarterly dividend, and the annualized rate of $2.00 yields 0.8%.
FedEx now expects to earn between $15.00 and $15.40 a share for all of fiscal 2018. The stock trades at a reasonable 16.5 times the midpoint of that range.
Recommendation in Wall Street Stock Forecaster: FedEx is a buy.
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