What To Make Of The Walgreens And FedEx Partnership

Summary

  • The two companies announced a joint partnership.
  • I discuss the implications of the new co-located services.
  • I revisit performance data and opine on the key indicator we need to watch for both companies.

When FedEx Corp. (NYSE:NYSE:FDX) pulled back heavily in June, I noted this as a buying opportunity. It is important to note that when I first opined on the name, I thought it was a strong company that was a touch too expensive. I also thought it should raise its dividend, and of course, it did recently raise the payout 60%. The company had been firing on all cylinders, but FedEx recently ran into an unexpected hiccup with its earnings. That said, the company has been out competed by UPS (UPS) in terms of its location services for pickup/dropoff locations. Just today, however, we learned that the company was taking steps to take back market share against UPS, which has substantially more of these locations nationwide. Beginning this year as a pilot and then rolling out to mass amounts of stores, FedEx will have locations located within Walgreens (NASDAQ:WBA). The move is a win for FedEx, and for WBA.

This partnership will add thousands of pickup and dropoff locations. It has two benefits. First, customers will have more convenience and more locations with which to do business with FedEx. This means they may be more likely to use the service over UPS, and if their pharmacy provider is Walgreens, then it becomes one stop shopping. While the exact costs to operate these services are unclear, the benefits are clear, provided they are cost efficient. For Walgreens, increased foot traffic should provide a bump to retail sales. That is a win. For FedEx, making the service more convenient will help take share from UPS. While FedEx and Walgreens have both performed well of late, performance can always be improved. This is especially true for FedEx, which struggled recently.

What do I mean? In its recent quarter, revenue was $14.9 billion, rising 19.2% year over year and meeting

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