Monday, July 21, 2014

Reasons to Buy FedEx

Following a weather affected start to the year UPS  and FedEx    have recovered nicely, with FedEx's latest results sending the stock sharply higher. Both stocks will always be correlated plays on global growth, but by stint of its productivity improvement plan, FedEx has an opportunity to strongly grow profits in the coming years. Moreover, e-commerce offers a good long-term growth opportunity. There is a lot to like about FedEx.

FedEx delivers strong results
Earlier in the year, FedEx was forced to reduce its full-year EPS guidance to $6.55-$6.80, and its rival, UPS, also reduced expectations by guiding the market to the low end of its full-year guidance of $5.05-$5.30. The good news is that FedEx summarily delivered diluted EPS of $6.75 in its full-year to May 2014. The market clearly liked the fact that its EPS figure came in at the top end of its range, but there are five other reasons investors should look favorably on the company.

Reasons to like FedEx
First, FedEx gave a slight upgrade to its expectations for U.S. GDP growth in 2015. A hike in expectations from 3% to 3.1% may not seem much, but it matters a lot to a company whose revenue correlates to economic growth. Moreover, at the start of the year, FedEx had predicted U.S. GDP growth of 2.4% in 2014, and global growth of 2.8%. Weather clearly played a part in reducing those estimates to 2.2% and 2.7%, respectively, but on a positive note, FedEx sees global growth accelerating to 3.1% in 2015 -- in line with U.S. guidance discussed earlier.