Today, we look at the astute management strategies that make FedEx one of our best stocks to buy in the U.S., including an acquisition that was denied to its main rival.
FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages and documents in the U.S. and 220 other countries through a fleet of 650 planes and 108,000 trucks and other ground vehicles.
The company recently agreed to buy TNT Express NV, a Netherlands-based courier that operates throughout Europe.
FedEx’s main rival, United Parcel Service (UPS), tried to buy TNT in 2012, but antitrust regulators rejected the deal because it would have given UPS too much of Europe’s courier market. Combined, FedEx and TNT would have about 17% of this business, so regulators will likely approve this purchase.
The company will pay $4.8 billion when it closes the deal, probably in early 2016.
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Best stocks to buy: New fuel-efficient planes should improve FedEx’s long-term profitability
Meanwhile, FedEx earned $2.6 billion in its 2015 fiscal year, which ended May 31, 2015, up 17.4% from $2.2 billion in fiscal 2014. Per-share profits jumped 27.0%, to $8.95 from $7.05, on fewer shares outstanding. These figures exclude unusual items, such as a $1.4-billion charge related to an accounting-policy change for FedEx’s employee pension plans.
Revenue rose 4.2%, to $47.5 billion from $45.6 billion. The company continues to see strong demand for its cheaper ground-delivery services thanks to more online shopping and a recent acquisition. That offset weaker air-delivery revenue after FedEx cut its fuel surcharges in response to lower oil prices.
The company plans to spend $4.6 billion on new fuel-efficient planes and other upgrades in fiscal 2016, up 5.7% from $4.35 billion in 2015. It can easily afford these outlays, as well as TNT: it holds cash of $3.8 billion, or $13.30 a share, and its $7.2 billion of long-term debt is a low 15% of its market cap.
FedEx now expects to earn $10.60 to $11.10 a share in fiscal 2016, excluding TNT. The stock trades at 15.9 times the midpoint of that range. That’s an attractive multiple, particularly as FedEx’s new planes improve its long-term profitability.
The company has also raised its quarterly dividend by 25.0%, to $0.25 a share from $0.20. The new annual rate of $1.00 yields 0.6%.
Recommendation in Wall Street Stock Forecaster: BUY.
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