Every Thursday we bring you “Our Top U.S. Stocks” as our daily post. In these new posts, you’ll get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about covered in our newsletter on U.S. investing, Wall Street Stock Forecaster.
“Our Top U.S. Stocks” is part of our new approach offering you regular buy, hold and sell advice in our daily posts. Every week you get “A Stock to Sell” on Monday, “Best Canadian Stocks” on Tuesday and on Friday, our advice on one of the stocks our Inner Circle members have asked about in their weekly Question & Answer sessions
FEDEX CORP. (New York symbol FDX; www.fedex.com) delivers packages and documents in the U.S. and over 220 other countries through its fleet of 650 planes and over 108,000 trucks and other surface vehicles.
The company recently changed the way it charges for shipping bulky packages by truck. In the past, it based its fee on weight, but it will now charge according to size. This makes it more expensive to ship lighter items that take up significant space, such as diapers. FedEx has also raised its fuel surcharge, which will help offset its rising fuel costs.
Meanwhile, FedEx is continues to benefit from an aggressive cost-cutting plan, which has helped increase its earnings. The company earned $2.10 billion in its 2014 fiscal year, which ended May 31, 2014. That’s up 6.1% from $1.98 billion in fiscal 2013. FedEx spent $4.9 billion on share buybacks in its latest fiscal year. As a result, its earnings per share rose 8.3%, to $6.75 from $6.23. Revenue gained 2.9%, to $45.6 billion from $44.3 billion.
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Top stocks: FedEx pleads not guilty to charges of profiting from illegal online pharmacy shipments
Consumers continue to shift away from express air deliveries to cheaper ground-based services. In response, FedEx has cut jobs and invested in more fuel efficient planes. These moves should increase its gross profits by $1.6 billion by the end of fiscal 2016.
The company’s aggressive buybacks have helped increase its share price by 44% in the past year. It now trades at a reasonable 17.3 times the $8.75 a share FedEx will probably earn in fiscal 2015.
In addition, the company recently raised its quarterly dividend by 33.3%, to $0.20 a share from $0.15. The new annual rate of $0.80 yields 0.5%.
Two days ago, FedEx appeared in court in San Francisco to defend itself against charges that it knowingly shipped packages from illegal online pharmacies. The company faces possible fines of up to $1.6 billion. It pleaded not guilty.
The outcome of the trial hinges on the responsibility FedEx, and other shipping companies, have for the contents of the packages they ship. The indictment claims FedEx was warned that illegal Internet pharmacies were using its services, but the company replied that it was not told to stop service to any specific firms.
FedEx denied wrongdoing in a statement from its senior vice-president of marketing and communications that noted “we are a transportation company—we are not law enforcement.”
The shares declined slightly on the opening day of the trial, but have since rebounded. We do not believe this prosecution will have any long-term effect on the prospects of the company.
FedEx is a buy.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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Every Thursday we bring you “Our Top U.S. Stocks” as our daily post. In these new posts, you’ll get our specific recommendation on the stocks we profile, with a full explanation of how we arrived at our opinion. You will read about stocks making moves you should know about covered in our newsletter on U.S. investing, Wall Street Stock Forecaster.
