Therefore, FedEx Corporation (NYSE:FDX) would benefit significantly if oil prices decline. Since some of the fuel surcharges are passed on to the customer, the customer may be prompted to seek cheaper, but slower, shipping alternatives. Therefore, declining oil prices would not only help the company to reduce its fuel expenses, but by offering a cheaper service, its revenue should be higher.
Taking a quick scan of FedEx Corporation (NYSE:FDX)’s aircraft fleet, maybe it is not a bad idea to replace its aircraft. The company operates 89 Boeing B757-200, a model that many airlines are replacing with more fuel-efficient aircraft such as the Airbus A320 or the Boeing B737-700. This should also help the company save on fuel expenses in the long run.
From the fundamental point of view, its balance sheet looks solid. FedEx Corporation (NYSE:FDX) posted an increase in revenue of 4% from 2012 to $44.2 billion for fiscal 2013. However, due to a large investment in transportation, its net income declined from $2.0 billion, or $6.44 per share, to $1.5 billion, or $4.95 per share.
The Foolish conclusion
I want my first rule of investment to be your guideline. There is always a place to invest. Therefore, if oil prices decline, these stocks offer excellent investment prospects because their operations expenses will decline significantly. We have observed that fuel expenses account in some cases for more than 10% of the consolidated revenues in these companies.
Delta Air Lines, Inc. (NYSE:DAL)’ fuel expenses account for 25% of the total expenses. Therefore, a reduction in oil prices should increase the possibility for the company to return value to its investors by hiking the recently initiated dividend payment.
CSX Corporation (NYSE:CSX) also spends a large amount of cash on fuel. Although the company is investing heavily in fuel-efficiency technology, declining oil prices should also bring higher operational margins.
Last, FedEx Corporation (NYSE:FDX)’s fuel expenses account for 10% of its consolidated revenue, a charge that is partially passed on to the customer. Therefore, lower oil prices may propel customers to pay less for shipping parcels, which should bring higher revenues.
For these reasons, I recommend owning these stocks if you observe a decline in oil demand.
The article Where to Invest When Oil Prices Decline? originally appeared on Fool.com and is written by Robinson Roacho.
Robinson Roacho has no position in any stocks mentioned. The Motley Fool recommends FedEx. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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