By Matt Doiron
Board member David Steiner filed with the SEC to report that on August 2nd, he had bought 5,000 shares of FedEx Corporation (FDX). Steiner purchased the shares at an average price of $87.65, and the stock closed on August 3rd at close to $90 per share. We track insider buying activity because statistically it tends to be a bullish signal. So while the stock has risen slightly in the short time since Steiner's purchase, it may have further to go. The $28 billion global shipping company has underperformed the S&P 500 so far this year and is up about 5%. Steiner is also the CEO of Waste Management (WM), having joined FedEx's board in 2009.
Steiner joins a number of fund managers who are long FedEx Corporation. Southeastern Asset Management, managed by Mason Hawkins, owned 12.3 million shares of the company at the end of March. Southeastern had substantially increased its position in the summer of 2011. Edgar Wachenheim's Greenhaven Associates reported owning 4.4 million shares, making it the largest holding in the fund's portfolio according to the 13F filing. Columbus Circle Investors increased its position in Fedex Corporation by 18% to 1.6 million shares, compared to about 1.3 million at the beginning of the year.
FedEx Corporation beat earnings in all four quarters of its last fiscal year, which ended in May 2012. Compared to its previous fiscal year, revenues were up 9% and net income rose about 40% (from under $1.5 billion to just above $2 billion). Growth occurred in the Express, Ground, and Freight segments of the company, with the largest contributor to the earnings increase being Ground, increasing its operating income by $439 million. This growth was partly driven by average daily Ground package volume growing by 4% and revenue per package rising 7%; each appears to be on an upward trajectory. FedEx has also been able to hold down many of its expenses, with salaries and employee benefits (the company's largest operating expense) only rising 5% - a little over half as rapidly as revenues.
FedEx, despite its historical growth, now trades at only 14 times trailing earnings with expected growth from analysts bringing its forward multiple under 11 and could be considered a value stock. It should be noted that with a beta of 1.4, FedEx (as might be expected of a transportation company) is exposed to broader fluctuations in the economy and stock market. Larger rival United Parcel Service (UPS) grew its earnings 5% in its most recent quarter compared to the same period last year and trades at considerably higher multiples - 19 times trailing earnings and between 14 and 15 times forward earnings. The company does, however, have a beta of only 1 and pays a 3% dividend yield. We asked if UPS is a good stock to buy last week. After studying FedEx in more detail and observing the insider purchase, we would recommend FedEx over UPS as a better value at this time.
Expeditors International (EXPD) and CH Robinson (CHRW) are also peers. These companies pay dividends between FedEx's and UPS's. Expeditors saw a 15% fall in earnings in its last quarter compared to the same period in 2011, and C.H. Robinson saw low earnings growth on the same basis. Both companies trade at 17 times forward earnings estimates. We think that FedEx is a better value than either of these companies, and a pair trade in which one of them is sold short would be one possible way to offset some of the risk of going long FedEx.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.