Longleaf Partners Fund, a suite of mutual funds and UCITS funds managed by Southeastern Asset Management, is bullish on FedEx Corporation (NYSE: FDX). In its most recent investor letter (you can download a copy here), the fund discussed FedEx and other companies. We’ve already covered the fund’s comments on Park Hotels & Resorts and General Electric. In this article, we’re focusing on Longleaf’s comments on FedEx.
FedEx (-35%, -2.22%, -33%, -2.17%), the transportation and logistics company, fell in the fourth quarter and for the year. Express revenues missed expectations after weakness in all the major Euro economies and what CEO Fred Smith called “bad political choices” weighed down international trade. These headwinds caused the company to lower earnings per share guidance by 8%.
The stock’s sharp decline ignored that the Ground segment, the largest part of our appraisal, reported strong high-teens earnings growth. FedEx’s Freight segment also performed very well with EBITDA (earnings before interest, taxes, depreciation, and amortization) up over 20% in 2018.
If the weakness in international trade persists, Ground should still grow revenues and margins. Because Amazon, another perceived risk to FedEx, constitutes less than 5% of company revenue, Amazon’s internal delivery development will have minimal effect on results. The company has a solid balance sheet and the potential to go on offense with share repurchase at these prices.
Jim Cramer believes that the Death Star – the nickname he has given Amazon – won’t be able to destroy FedEx Corporation (NYSE: FDX). “Because I think that in the end, Amazon can only destroy so many companies. We did a big riff last night on their bunny. But, if you sold Cisco on that Amazon was going to move into routers and telecommunications, while you would miss the gigantic rally if you sold Auto Zone because they were going to move into auto parts. You missed a gigantic rally,” Cramer told The Street.
FDX shares are up more than 9% this year so far. However, over the past six months, the stock has plummeted nearly 27%. FDX, currently trading at $172.86, has a consensus average rating of ‘BUY’ and a consensus average target price of $223.39, according to analysts polled by FactSet.
FDX isn’t very popular stock among hedge funds tracked by Insider Monkey. Our database shows that 42 funds held the stock at the end of the third quarter of 2018. Bullish investors include Springbok Capital, Greenhaven Associates, and Bill & Melinda Gates Foundation Trust.