Here's Why You Should Retain FedEx (FDX) in Your Portfolio

·2-min read

FedEx Corporation (FDX) is benefiting from its solid liquidity as well as investor-friendly steps. However, demand weakness is a headwind.

Factors Favoring FDX

FedEx's liquidity position is solid. Notably, the company's current ratio, a measure of liquidity, was pegged at 1.32 at the end of third-quarter fiscal 2023. A current ratio of more than 1 indicates that the company's assets will be able to cover its debts that are due at the end of the year.

Moreover, the company exited the third quarter of fiscal 2023 with cash and equivalents of $5,373 million, much higher than its current debt of $147 million.

We are pleased with the company’s efforts to reward its shareholders even in these difficult times. In June 2022, FedEx raised its quarterly dividend by 53% to $1.15 per share (or $4.60 annually). FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion.

Key Risk

Due to demand weakness, FDX trimmed its estimate for fiscal 2023 capital expenditures to $5.9 billion (prior view: $6.3 billion). This might hit its long-term growth prospects.

Zacks Rank & Key Picks

FedEx currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL) and United Airlines (UAL).

American Airlines, currently carrying a Zacks Rank #2 (Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%.

For first-quarter and full-year 2023, AAL’s earnings are expected to register 100.4% and 332% growth, respectively, on a year-over-year basis.

United Airlines, carrying a Zacks Rank #2 at present, is seeing steady recovery in domestic and leisure air-travel demand. On the back of upbeat air-travel demand, UAL was profitable in the fourth quarter of 2022. The fourth quarter was the third consecutive profitable quarter at UAL.

Driven by solid demand, management expects total revenue per available seat mile to grow 25% year over year for the first quarter of 2023. Total revenues are anticipated to grow 50% year over year. The Zacks Consensus Estimate for full-year 2023 earnings are expected to surge 227% year over year.

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