The report is commissioned to provide an overview of leading American courier company, FedEx, and if the stock of the company deserves a weightage in the investment portfolio. Important to note, we are writing this report not with a psychology of a speculator, rather our analysis will be on the line of the investment theory of fundamental analysis. As part of this theory, we will be amalgamating our own research, economic trends in the industry and will also look at the views of the market analysts to provide a final recommendation on the stock.
About the company
Founded in the year 1971 and headquartered in Memphis, Tennessee, FedEx is an American global courier deliver service company that provides its services both domestically and internationally. The company operates four segments, FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. By the end of 2014, the company had 325000 full time employees and operations in five continents.
About the industry
FedEx Corporation competes in Global Courier and Delivery Service Industry. During 2010-2014, the industry witnessed a growth of 2.1% on annualized basis, and with the boom of e-commerce industry and related logistics services, the industry is expected to achieve a growth multiple of 7.6% on annualized basis. Overall, the market analysts are optimistic about the future run of these companies.
Source of Analysis
As already discussed in the introductory section, the analysis will be conducted by running the past two year financial figures through the microscope of financial ratios and by analyzing the income statement of the company. Important to note, we have sources all the figures from the latest year annual report of the company which we have sourced from the following url:
Analyzing Income Statement
As part of the financial analysis of the financial statements of the company, we analyzed the latest year income statement of FedEx comparing its performance during 2013 and 2014. Referring to the income statement of the company, we found that during 2014, the revenue figures surged by 2.85%, while amid controlled costs of sales, and the gross profit figures increased by 1.29%. However, the main attraction in the income statement was the controlled operating expenses of the company, whose proportion to revenue figures declined from 94.2% to 92.4%, thus fueling the growth in the operating margins from 5.80% in 2013 to 7.80% in 2014. The effect of efficient cost management by the company was witnessed in the bottom line profits also, which also increased from $1561 million in 2013 to $2097 million in 2014, recording a sustainable growth of 34.33%.
Review and Recommendation
As we just witnessed that owing to efficient cost management, FedEx Corporation was able to transform the increased revenue figure of as less than 2.8%, into a sustainable profit margin of 7.8%. However, comparing the position with the rival companies, the company still needs to work aggressively on increasing its revenue figures and derive higher profits and achieve better asset turnover.
Moving ahead with the financial analysis of the company, we will now run the financial figures of past two years under the microscope of financial ratios. The outcome will assist is in unearthing the past two years trend in the company’s operations. However, in order to keep the concise yet meaningful, we have calculated two financial ratios, and have compared them with the rival company, United Parcel Services(UPS):
i)Net Income Margin: Net Profit/ Revenue
2013: 1561/44287= 3.52%
2014: 2091/45567= 4.58%
2014: 3032/58232= 5.20%
ii) Asset Turnover Ratio: Revenue/ Total Assets
2013: 44287/33567= 1.32
2014: 45567/33070= 1.37
2014: 58232/35471= 1.64
Referring to the above calculations, we can witness that during 2014, the profitability of FedEx has improved sustainably with net profit margin surging from 3.52% to 4.58%. In contrast, the rival firm UPS, could not exercise an efficient control over its operating expenses, and despite of an increase in the revenue figures, the net profit margin declined from 7.88% to 5.20%. Therefore, on an inter-company comparison, FedEx has showed a strength in its profitability trend.
We also analyzed the asset turnover of both the companies to evaluate the efficiency of the management over the use of the asset base to generate revenue. Interestingly, both the entities indicated an increasing trend. As for FedEx, the ratio multiple surged from 1.32 to 1.37, while UPS overshadowed FedEx with the higher asset turnover multiple of 1.64 during 2014. Therefore, although FedEx has indicated a promising trend here also, but it surely needs to work aggressively to generate higher revenue figures and subsequently, higher asset turnover multiple.
At the conclusion of our report, and amid a comprehensive analysis of the company using the financial ratios and review of the trends of the financial items in the income statement, we issue a buy recommendation for the company’s stock as amid foresighted growth potential of the courier industry, and efficient cost management skills of FedEx management, we believe that this stock will provide appreciable returns to the investors. Our recommendation is also in consent with the other market analysts following the stock:
Analyst Opinion: FedEx Corporation. n.d. Retrieved from https://in.finance.yahoo.com/q/ao?s=FDX.
FedEx Annual Report. n.d. Retrieved from http://annualreport.van.fedex.com/2014/. Global Courier &
Delivery Services: Market Research Report. n.d. Retrieved from
Profile: FedEx Corporation. n.d. Retrieved from https://in.finance.yahoo.com/q/ao?s=FDX.