FedEx Corporation (FDX): Don’t Miss the Upside Potential of This Stock

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FedEx has had to take impairment charges while it retires planes and unnecessary routes on its express service. In a sense, this makes it a more interesting ‘growth’ proposition than United Parcel Service, Inc. (NYSE:UPS).The latter offers a near 6% free cash flow yield but lower EPS growth rates than FedEx. Meanwhile, FedEx trades on a free cash flow yield in the low single digits.

FedEx’s greater earnings prospects are largely due ongoing growth in its ground segment, plus the opportunity to make profitability improvements in its express segment. The plan is to generate around $1.6 billion in improvements in express by the end of 2016.While its international yields are expected to remain under pressure, the cost savings and capacity reductions are expected to generate growth. To put this into perspective, FedEx Corporation (NYSE:FDX) trades at 11.3 times EPS estimates for May 2015 while UPS is on 15.2x to December 2014.

The bottom line

The trends identified above don’t look like they are going to go away anytime soon. The difference is that FedEx is dealing with its challenges and the stock represents a good opportunity to benefit from any potential upside from the global economy, the secular trend towards e-commerce plus the successful completion of its cost reduction plans.

Deutsche Post is also an interesting option for investors looking for European exposure while United Parcel Service, Inc. (NYSE:UPS) offers more of a ‘pure’ exposure to global trade growth.However all three are only worth considering if you are positive on global growth.

The article Don’t Miss the Upside Potential of This Stock originally appeared on and is written by Lee Samaha.

Lee Samaha has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Lee 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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