FedEx Keeps on Truckin' (FDX)

Reuters.com reported Wednesday that Memphis, Tennessee-based FedEx (FDX) is in talks to acquire privately-held carrier Watkins Motor Lines, according to separate articles that surfaced in the Lakeland Ledger and the Memphis Commercial Appeal earlier last week week. The articles were later cited in analyst reports.

Then Friday, the Memphis Business Journal reported that FedEx had closed the Watkin's deal acquiring the company for $780 million. FedEx has been expanding into trucking for a number of years, and the Watkins buy appears to fit in nicely with the rest of the company, as the following charts from Norbridge, Inc. show.

While FedEx has 8 percent of the regional LTL (less than truckload) business, Watkins holds a similar share in the less competitive long-haul segment.

Transportation analyst Ed Wolfe of Bear Stearns notes that such an acquisition would be accretive to FedEx’ earnings per share. Don’t be fooled by that logic, as it is just a function of FDX trading at 20x earnings while the truckers trade at less than 10x.

By the EPS accretion logic, Google (GOOG) should buy all the trucking companies, homebuilders and other cyclicals. Problem is, they wouldn’t keep their multiple if they did (and nor should FedEx.)

FDX 1-yr chart: