This article is about FedEx Corp. (NYSE:FDX) and why it's a total return growth company that is being reviewed by The Good Business Portfolio. FedEx Corp. provides a portfolio of transportation, e-commerce and business services under the FedEx brand. It is projected that E-commerce will grow at a 9.5% CAGR for the next few years, therefore growing FedEx Corp. revenues and earnings. Fundamentals of FedEx Corp. will be looked at in the following topics, The Good Business Portfolio Guidelines, Total Return And Yearly Dividend, Last Quarter's Earnings, Company Business Overview, and Takeaways And Recent Portfolio Changes.
Good Business Portfolio Guidelines.
FedEx Corp. passes 11 of 11 Good Business Portfolio Guidelines. These guidelines are only used to filter companies to be considered in the portfolio. For a complete set of the guidelines, please see my article "The Good Business Portfolio: Update To Guidelines and July 2016 Performance Review". These guidelines provide me with a balanced portfolio of income, defensive, momentum, total return, and growing companies that keeps me ahead of the Dow average.
FedEx Corp. is a large-cap company with a capitalization of $42.7 billion. The nearest company that is a competitor is United Parcel (NYSE:UPS) with a capitalization of $76 billion, but does not have the greater growth potential of FedEx Corp. FedEx Corp. cash flow easily covers the low dividend and leaves plenty of cash to buy more trucks and planes to meet the expanding business requirement.
FedEx Corp. has a dividend yield of 1.0% and its dividend has been increased for 7 of the last ten years, just meeting my guideline for dividend growth. The payout ratio of the dividend is low at 14% over 5 years. The dividend is below average for the market. FedEx Corp. is therefore not an income investment, but great total return company with a growing business that will make you money over time as the economy grows.
FedEx Corp. last yearly cash flow is improving at $4.46 billion which leaves FedEx Corp. plenty of cash, allowing it to pay its low dividend and have much left over for its continued business expansion and stock buy backs. The average dividend payout ratio over the last 5 years is 14%, which is low and allows FedEx Corp. to invest in growing the business for great total returns.
I also require the CAGR going forward to be able to cover my yearly expenses. My dividends provide 3.1% of the portfolio as income and I need 1.9% more for a yearly distribution of 5%. FedEx Corp. has a three-year CAGR of 15% more than meeting my requirement. Looking back five years $10,000 invested five years ago would now be worth over $17,900 today (from S&P IQ). This makes FedEx Corp. a good investment for the total return growth investor.
FedEx Corp. S&P Capital IQ rating is Five star or strong buy with a target price of $195. FedEx Corp. is then under priced by 22% at present and a good choice for the total return growth investor. FedEx Corp. PE is relatively low at 16 for their projected 2017 earnings, while UPS is at the target price and fairly priced at present.
Total Return And Yearly Dividend
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio, the total return guideline was just added to my list of guidelines. FedEx Corp. did much better than the Dow baseline in my 42.7 month test compared to the Dow average. I chose the 42.7 month test period (starting January 1, 2013 and ending to date) because it includes the great year of 2013, and other years that had fair and bad performance. Modeling the Dow average is not an objective of the portfolio but just happened by using the 11 guidelines as a filter for company selection. The good total return and low dividend makes FedEx Corp. a choice for the total return growth investor. The dividend has been increased for 7 of the last ten years. DOW's 42.7 month total return baseline is 41.73%. The total return during the test period for FedEx Corp. is above the DOW average at 72.42% beating the DOW baseline by 30.69%. In 2013 a good year for the market FedEx Corp. beat the DOW gain of 27% in total return by 21.67% at 48.67% total return. YTD total return is 7.54% about 1% better than the DOW average. Looking at these data points FedEx Corp. pretty much beats the DOW average in good and bad markets and follows the economy with a good beat in total return overall.
Dow Baseline 41.73%
42.7Month total return
Difference from DOW baseline
Yearly Dividend percentage
Last Quarter's Earnings
For the last quarter on June 21, 2016 FedEx Corp. reported earnings that beat expected earnings at $3.30 compared to last year at $2.66 and expected at $3.27. Revenue was higher at $13.0 billion up from last year by 7.3% year over year and beat estimated revenue by $220 million. This was a good report showing good improvement from the same quarter of 2015. Earnings for the next quarter will be out in late September and is expected to be $2.80 compared to last year at $2.42 FedEx Corp. guided there total earnings for 2017 to $11.75-$12.25 enough to cover the dividend with a lot left over. They also bought back $2.7 billion of their shares in 2016 and the operating margin increased to 11.7% from 10.5%. This year over year gain shows the grow potential of FedEx Corp, and it should continue as E-commerce increases going forward.
FedEx Corp. provides a portfolio of transportation, e-commerce and business services under the FedEx brand. The Company offers its services through companies constituting four business segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. FedEx Express offers a range of domestic and international shipping services for delivery of packages and freight. The company also provides printing and other office services.
Forrester Research Inc. did a report on projected E-retail growth to be from $263 Billion in 2013 and growing to $414 billion in 2018, a 9.5% CAGR. They also estimated that the percentage on E-retail sales would continue to increase as a percentage of the total sales.
One of my guidelines is: would you buy the whole business if you could right now? I would buy FedEx Corp. Its growth is almost assured as the population grows and more and more companies sell their products over the internet that need shipping. I also don't think the fly by night idea of delivering products by drones is anywhere in the future (next 15 years). The FAA has published very strict rules that would not let this happen.
Takeaways and Recent Portfolio Changes
FedEx Corp. is a good investment for the total return growth investor with its well above average total return compared to the DOW average over my test period and other periods. FedEx Corp. will be definitely be considered for The Good Business Portfolio when an open slot occurs.
Trimmed Cabela's (NYSE:CAB) from 5.5% to 5.3% just took a little off the table since nothing has been said lately about the buyout.
Sold some CAB covered calls, sold August $55's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that CAB goes up so I can sell the calls again in the same month for a Double.
Sold some covered calls on Harley Davidson (NYSE:HOG), sold August 50's. If the premium gets to 20% of the sold premium price, I will buy them back with the hope that HOG goes up so I can sell the calls again in the same month for a Double.
The Good Business Portfolio generally trims a position when it gets above 8% of the portfolio. Below are the six top positions in The Good Business Portfolio. Johnson and Johnson (NYSE:JNJ) is 8.7% of the portfolio, Altria Group Inc. (NYSE:MO) is 8.0% of the portfolio, Home Depot (NYSE:HD) is 7.8% of portfolio, Boeing (NYSE:BA) is 7.8% of the Portfolio, Eaton Vance Enhanced Equity Fund II (NYSE:EOS) is 6.9% of the Portfolio and Walt Disney (NYSE:DIS) is 6.6% of the portfolio, therefore MO and JNJ are now in trim position with Boeing, Home Depot, Eaton Vance equity Fund II and Walt Disney getting close. Boeing is going to be pressed to 10% of the portfolio because of it being cash positive on individual 787 plane costs, announced in the 2015 fourth quarter earnings call. JNJ will be pressed to 9% of the portfolio because it's so defensive in this post Brexit world.
For the total Good Business Portfolio please see my recent article on Good Business Portfolio: 2016 first-quarter earnings and performance for the complete portfolio list and performance. Become a real time follower and you will get each quarters performance after the earnings season is over.
I have written individual articles on CAB, JNJ, EOS, GE, IR, MO, BA, AA, Omega Health Investors and HD that are in The Good Business Portfolio and other companies being evaluated by the portfolio. If you have an interest please look for them in my list of previous articles.
Of course this is not a recommendation to buy or sell and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account and the opinions on the companies are my own.
Disclosure: I am/we are long BA, JNJ, HD, MO, EOS, CAB, HOG, DIS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.