FedEx Corporation is a world-renowned shipping company, known for its overnight shipping service and systems to track packages. In January, Argus Research gave bullish comments about FedEx based on its valuation and earnings estimates. The firm has a Buy rating for the stock with a price target of $305.
Michael Larson’s Bill & Melinda Gates Foundation Trust owns 3.02 million shares of the shipping company, worth $760.85 million. As of the end of the third quarter, 71 hedge funds held stakes in the company. Here is what Cartenna Capital said about FDX in its 2020 Q3 letter:
“FedEx Corporation (“FDX”) was the Fund’s largest positive contributor to performance during Q3, and we remain very bullish on the entire parcel sector into Q4. When we initially purchased shares of FedEx, it represented an extremely attractive idiosyncratic opportunity embedded within our constructive transportation market outlook. For the past several years, we have generally held a negative bias on FedEx operations as they have routinely suffered from both macroeconomic headwinds (US-China trade war) and company specific issues that have been self-inflicted (i.e. lost Amazon as a customer, poor TNT acquisition/ransomware attack). However, as FedEx began their Fiscal Year 2021 in June, many of these headwinds were poised to reverse and become tailwinds. First, capacity utilization across transportation supply chains was (and still is) very high, stemming from a Covid-19 induced inflection in ecommerce spending. This dynamic has led to increased pricing power for parcel delivery services. Second, we believed that newfound capital discipline at both UPS and FedEx would allow this tight market to last for an extended period. More specifically, FDX changed their executive compensation in Fiscal Years 2021-2023 to include a 25% weighting that incentivizes capital expenditures to remain near 6% of revenue, a meaningful reduction from elevated spending in recent years. Similarly, the legendary Carol Tome came out of retirement to run UPS and used the July earnings calls to highlight capital discipline by repeatedly saying “it’s all about being better, not bigger.” Third, in Europe, FedEx recently achieved interoperability between its FedEx and TNT networks. This will allow for the two sub-scale networks to combine and achieve meaningful profit improvement. The three tailwinds cited above are just a few that we have selected from a long list of both industry and company-specific reasons to be excited about FedEx (and UPS). We have taken some profits recently but will look to build back our stake in FDX as opportunity arises.”
