It’s a home-delivery world out there and parcel shipping giant FedEx (FedEx Stock Quote, Chart, News NYSE:FDX) is going to be a key beneficiary, says investor John Zechner of J. Zechner Associates, who claims that while the stock has suffered some in recent years, there’s now good value in the name.
FedEx shares have bounced nicely over the past couple of weeks with the rest of the market, but the stock is still miles off from its highs hit back in early 2018 —FDX hit a high of $274 in January 2018 but has since steadily dropped and was in the $150 range before the COVID-19 crisis started impacting markets in late February.
But while doubts remain about the company’s ability to grow its margins there’s no doubt the present social distancing environment will be good for the company’s top line, according to Zechner, chairman and founder of J. Zechner Associates.
“We do like it and we were buying it as it got down to under $100 briefly. I did peel back and sell a bit of our position in the run-up last week because it really had a fast upward move,” said Zechner, in conversation with BNN Bloomberg on Monday.
“I like the position where it’s going long-term and I like the restructuring and the acquisitions they’ve done. I look at their positioning of the business especially in this kind of environment, I just think that home delivery will continue to pick up, even if they lose a bit of business as Amazon brings [delivery] in-house,” he said. “There’s still continued growth there.”
The Amazon drama with regard to shipping took another turn last week when the e-commerce king decided to put its own Amazon Shipping service for third-party customers on hold as it has enough to contend with on shipping its own packages during the rush to online shopping caused by COVID-19 regulations.
That news was greeted warmly by FedEx and UPS investors who pushed up both the stocks in response. Amazon is seen as a significant rival to the two, with its competitor status coming firmly to bear in FedEx’s decision last year to end its partnership with Amazon due to its deeper entry into logistics and shipping.
FedEx has failed to impress in its quarterly reports of late, although its most recent, delivered in March, beat analysts’ expectations for revenue. FDX’s Q3 saw revenue rise three per cent to $17.5 billion while the company’s net income fell 54 per cent to $371 million or $1.41 per share. Analysts had predicted revenue of $16.89 billion and earnings of $1.41 per share.
Zechner said investors should take advantage of the declines in share price as they come along.
“The next couple of quarters may be a little shaky —they’ve missed a bunch of quarters in the past couple of years, probably six out of the last eight, which has put a lot of pressure on the stock, and I think that’s where the opportunity is,” Zechner said.
“I look at the valuation of the stock and prior to COVID-19 it had been trading at about 10x forward earnings, so those earnings get impacted in the short term,” he said.