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FedEx Corporation (FDX): A Bargain in the Delivery Business

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Amid the rapid growth of the global delivery market, FedEx Corporation (NYSE:FDX) has been fulfilling an ever-larger share of ground deliveries. But while that expansion should yield strong earnings growth for the company going forward, FedEx Corporation (NYSE:FDX)’s shares have dropped more than 5% in the past few weeks. Is this a tremendous buying opportunity, or should prospective investors wait for shares to correct further?

The State of FedEx: 2013

Currently, FedEx is the largest provider of express air delivery services in the world. The company operates their express business with a network of over 52,000 vehicles, 660 aircraft, and almost 60,000 drop-off boxes, in more than 220 countries.

FedEx Corporation (NYSE:FDX)

Express delivery services, which includes same-day and overnight shipping, make up 62% of the company’s revenues. About half of the express business’ revenues come from international markets, and the company’s air delivery serves more than 400 cities worldwide.

The rest of FedEx Corporation (NYSE:FDX)’s revenues mostly come from its ground delivery business, the U.S.’s second-largest largest package delivery service. The company’s focusing most of its current expansion efforts on this ground segment, as FedEx takes measures to continually improve the speed, reliability, and footprint of its delivery network.

At 12% of its revenue, FedEx also offers freight service, which provides LTL (less-than-truckload) shipping services throughout the United States and Canada, with a variety of flexible shipping options.

The FedEx Corporation (NYSE:FDX) Office segment, which evolved from the company’s acquisition of Kinko’s in 2004, accounts for another 5% of the company’s revenues. It operates about 1,200 copy centers that also provide shipping and business services.

The Numbers Look Good!

FedEx trades for just under 16 times the current fiscal year’s consensus earnings of $6.05 per share, which are set to be released on June 19. Due to rising revenues and higher margins, earnings are projected to rise to $7.42 and $9.18 per share for fiscal years 2014 and 2015, respectively. This translates to annual earnings growth of 22.6% and 23.7% over the next two years.

In other words, FedEx Corporation (NYSE:FDX) trades for just 10.5 times what it is projected to earn in two years from now. Not bad for a company that’s growing at a double-digit rate, and which has an excellent balance sheet with more than $1.6 billion more cash than debt.

A Few Alternatives

While there aren’t many direct competitors of similar size and structure as FedEx, there are a few alternatives in the delivery segment. The No. 1 delivery company in the world by sales volume, United Parcel Service, Inc. (NYSE:UPS) is more domestically oriented than FedEx Corporation (NYSE:FDX), with just 22% of its revenues coming from international business.

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