Author Topic: FDX - FedEx  (Read 23570 times)

rockket

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FDX - FedEx
« on: March 15, 2013, 09:26:49 AM »
Curious to get members' thoughts here.

Solid management, formidable moat, taking share away from UPS, and currently undergoing a huge restructuring plan concordant with a decline in CapEx that should see big impacts on FCF in about 2015. Margin improvements coming from shifts towards its higher margin ground business and increased operating leverage.

All in all ROIC should increase and FCF should grow faster than EPS, which should be ~15% per year for the next few years. Big upside with the global economy's improvement as well, as FDX and UPS are levered to the economic recovery.

I'd argue that the multiple should be higher here (currently ~14x forward) - and it certainly will be/could be if management can execute on its restructuring plan as proposed.
« Last Edit: March 15, 2013, 11:16:24 AM by rockket »


blainehodder

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Re: FDX - FedEx
« Reply #1 on: March 15, 2013, 10:13:04 AM »
Hmmm...  Doesn't seem very cheap looking at the historical financials...

http://www.gurufocus.com/financials.php?symbol=FDX

I know nothing about the restructuring, but is a moat in a medicore return business worth much?   I much prefer to play in the cheap field to give me a handicap.
« Last Edit: March 15, 2013, 10:22:20 AM by blainehodder »

rockket

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Re: FDX - FedEx
« Reply #2 on: March 15, 2013, 10:34:08 AM »
UPS' ROIC is ~20%, and FedEx is moving towards that level, though that'll take years to achieve. More important is that RONIC is well above its current ~10% ROIC. Assuming that volumes increase (likely short of another recession - even then, top line is somewhat resilient) and the shift towards ground continues, ROIC will grow; a successful restructuring should do so even further.

On top of that you have growth.

I guess my thought is that FedEx is moving towards a highly FCF generative and increasing ROIC state, with arguably better market position than UPS, and deserves higher valuation/should see multiples expand to match that.

Another bit about the UPS/FedEx duopoly is that it's pretty clear any type of pricing war won't make sense (DHL bowed out a few years ago as it couldn't compete), and we should see a shift towards profit maximization as a result, including pricing increases.


« Last Edit: March 15, 2013, 10:43:47 AM by rockket »

Ross812

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Re: FDX - FedEx
« Reply #3 on: March 15, 2013, 11:05:13 AM »
I thought FedEx lost a portion of their USPS contract carrier service to UPS and the commercial airline industry this year? FedEx operates more as a transportation conglomerate than a true transportation company like UPS. If you send two packages to the same person. One three day ground on Monday, the second next day air on Wednesday they will be delivered by two different trucks on to the same address on Thursday. There are a lot of inefficiencies that can be remedied at FedEx, but their network is just not as big as UPS's and there is no way they can be as efficient because of this fact.

When UPS comes to your neighborhood, they deliver 20 packages. When FedEx comes to your neighborhood, Express delivers 2 packages and freight delivers 8. Even if the services were combined, the cost of delivering 10 packages or 20 is same and UPS is still more profitable. FedEx is trying to catch up to UPS's efficiency while UPS is using FCF to fund expansion, which in the end will further widen their moat as their network grows.

That being said, both are good businesses and both, in my opinion, are overpriced when considering their future growth rates. FedEx and UPS rise and decline with the overall economy and can be had very cheaply (for a business of their quality) when the broader market declines. 
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Jurgis

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Re: FDX - FedEx
« Reply #4 on: July 03, 2018, 11:20:46 AM »
Sorry, Viking, but I'm gonna bump the old Fedex thread.
Probably Sanjeev should just merge the two threads.

I've looked at FDX on and off. It's been almost perpetual member of Barron's "World's Best CEOs" list.
It is interesting and attractive somewhat, but I'm not comfortable with the debt and lack of FCF.
https://www.sec.gov/Archives/edgar/data/1048911/000156459018006410/fdx-10q_20180228.htm
Maybe it's similar to my reservations about UHAL: I'm not sure if the cash is spent wisely.


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Viking

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Re: FDX - FedEx
« Reply #5 on: July 04, 2018, 12:44:53 AM »
Jurgis, not a problem. I have copied over my note and deleted my comment from the previous thread. :-)

I am looking for world class companies to add to my portfolio. The challenge is they rarely get cheap enough so I never make the purchase. I think a case can be made to purchase the best companies at a fair price versus always waiting for a rock bottom price, which may never come. The goal is to build a stable of best in class companies that one is comfortable holding for the long term.

FexEx looks to me to be a solid candidate. The company has an amazing long term track record of growth, being well managed and being very shareholder friendly. The company is front and center in the middle of the current boom: as more retailing is done direct to consumer more goods will need to be shipped. Their recent purchase of TNT is about 6 quarters away from being fully digested; when this happens we will see a nice acceleration in total profits. The current PE multiple (to 2018 earnings) is about 13. Not crazy cheap; but what I am learnings over the years is better to pay a fair price for a great business and then sit in the weeds and let management do their thing and reap the reward for many years after.

DoctorRX just published a great FDX article on Seeking Alpha: https://seekingalpha.com/article/4184838-fedex-buying-long-haul-negative-newsflow

Spekulatius

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Re: FDX - FedEx
« Reply #6 on: July 04, 2018, 04:59:36 AM »
I thought in FDX is a reasonable idea. Good company at a reasonable price. I have owned UPS in the past, but sold the position to very trade war and teamster concerns but now I reconsider, I think FDX is a better choice and I believe the ROA for FDX and UPS will converge over time.p, which benefits FDX.
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peterHK

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Re: FDX - FedEx
« Reply #7 on: July 04, 2018, 06:24:41 AM »
They've done a lot in the past few years to set themselves up well for the future.

The reason they have no FCF is they're reinvesting everything to expand capacity as more and more things are shipped between businesses and consumers. Their ecommerce business is relatively small vs. UPS, but it's not particularly profitable. An increase in USPS rates, as Trump has hinted at, would benefit this side of the business.

They've also reduced their pension liability which was another issue on the balance sheet.

Leverage is quite reasonable at 2x EBITDA or so net, and I doubt the CEO who owns billions in stock is going to do something that threatens his business.

Jurgis

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Re: FDX - FedEx
« Reply #8 on: July 04, 2018, 08:44:55 AM »
They've also reduced their pension liability which was another issue on the balance sheet.

Yeah, I thought I remembered pension liability being an issue to me and saw lowish number and was like "do I remember this wrong". I should take more notes.  8) Edit2: pension liability cleanup is a positive in my view.

So I guess the consensus is that reinvesting into business is justified although I'm not sure it's showing up in revenues numbers.

Anyone wants to give opinion FDX or UHAL?  8) (Maybe apples to oranges, but  8))
« Last Edit: July 04, 2018, 08:59:47 AM by Jurgis »
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peterHK

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Re: FDX - FedEx
« Reply #9 on: July 04, 2018, 01:25:02 PM »
They've also reduced their pension liability which was another issue on the balance sheet.

Yeah, I thought I remembered pension liability being an issue to me and saw lowish number and was like "do I remember this wrong". I should take more notes.  8) Edit2: pension liability cleanup is a positive in my view.

So I guess the consensus is that reinvesting into business is justified although I'm not sure it's showing up in revenues numbers.

Anyone wants to give opinion FDX or UHAL?  8) (Maybe apples to oranges, but  8))

The two aren't really similar businesses. UHAL is reinvesting in storage, which takes time to build and get occupancy, so it probably hasn't shown up in their reported financials yet. I haven't looked at them in a while so I don't know for sure.

FDX's investments are just part of growth; it's a capex intensive business.

Where the real opportunity is for FDX is getting TNT more efficient, which should drive ~$20 of EPS or so in 2020, if the analyst community is to be believed. I think this is at peakish earnings, so I don't know how full a multiple I'd put on that.