Fedex Corp (FDX) Quarterly Valuation – March 2014
Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Fedex Corporation fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): FedEx Corporation (FedEx) is a holding company. The Company provides a portfolio of transportation, e-commerce and business services under the FedEx brand. Federal Express Corporation (FedEx Express) is an express transportation company, offering time-certain delivery within one to three business days and serving markets. FedEx Ground Package System, Inc. (FedEx Ground) is a provider of small-package ground delivery service. FedEx Freight Inc (FedEx Freight) is a provider of less-than-truckload (LTL) freight services. FedEx Corporate Services, Inc. (FedEx Services) provides the Company’s other companies with sales, marketing, information technology, communications and back-office support. In June 2012, the Company acquired polish courier company Opek Sp. z o.o. In July 2012, the Company acquired TATEX. In July 2012, the Company’s, FedEx Express business unit, acquired Rapidao Cometa, a transportation and logistics company.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| Recent Price | $138.57 |
| MG Value | $167.99 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $82.01 |
| Value Based on 0% Growth | $48.08 |
| Market Implied Growth Rate | 8.00% |
| Net Current Asset Value (NCAV) | -$16.17 |
| PEmg | 24.50 |
| Current Ratio | 2.01 |
| PB Ratio | 2.51 |
Balance Sheet – 11/30/2013
| Current Assets | $10,866,000,000 |
| Current Liabilities | $5,406,000,000 |
| Total Debt | $2,739,000,000 |
| Total Assets | $33,542,000,000 |
| Intangible Assets | $2,737,000,000 |
| Total Liabilities | $16,009,000,000 |
| Outstanding Shares | 318,000,000 |
Earnings Per Share
| 2014 (estimate) | $6.60 |
| 2013 | $4.92 |
| 2012 | $6.41 |
| 2011 | $4.58 |
| 2010 | $3.77 |
| 2009 | $0.31 |
| 2008 | $3.61 |
| 2007 | $6.48 |
| 2006 | $5.83 |
| 2005 | $4.72 |
| 2004 | $2.76 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $5.66 |
| 2013 | $4.79 |
| 2012 | $4.39 |
| 2011 | $3.51 |
| 2010 | $3.31 |
| 2009 | $3.45 |
Dividend History
FDX Dividend data by YCharts
Conclusion:
Fedex Corporation is suitable for the Enterprising Investor but not the Defensive Investor. Â The company has shown insufficient earnings growth over the ten year period and is trading at PEmg and PB ratios that are too high for the Defensive Investor, but the company passes all of the requirements of the Enterprising Investor. Â As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable conducting further research into the company and its competitors such as through a review of ModernGraham’s analysis of United Parcel Service (UPS) and a Glance at the Dow. Â From a valuation perspective, the company appears to be fairly valued. Â The company has grown its EPSmg (normalized earnings) from $3.31 in 2010 to an estimated $5.66 for 2014, a level of demonstrated growth that supports the market’s implied estimate of 8.00% earnings growth. Â The ModernGraham valuation model has returned an estimate of intrinsic value that falls within a margin of safety in relation to the price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Fedex Corporation (FDX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in Fedex Corporation (FDX) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
