FedEx Proving It’s Absolutely, Positively Part of the New Normal

FedEx Corporation (NYSE:FDX) just delivered an earnings report that is causing the stock to soar. It appears that shares of the delivery services company will open up nearly 10% above its closing price of $236.67 on September 15.

The growth of course is coming from the fact that e-commerce has become mainstream. And it’s not just our non-essentials anymore. Americans are becoming increasingly comfortable with groceries, prescription drugs, and other daily essentials being delivered to their doorstep.

However analysts had largely expected FedEx to beat expectations. What they didn’t expect was the margin of the company’s victory. FedEx beat on the bottom line by 81%. And that was coupled with a beat of approximately 10% on the top line.

By any measure this was a stellar report. And keep in mind; this was for the quarter ending on August 31. For many areas of the country, the economy was reopening during this time.

Plus, the company is growing its top and bottom lines in the face of increasing competition. Every day, I see FedEx trucks roll through my development. But I also see Amazon (NASDAQ;AMZN) and United Parcel Service (NYSE:UPS) trucks. Not to mention the occasional drive by from the USPS.

What is becoming clear is that there’s plenty of room in the home delivery space. But FedEx still plays a key role.

The Value Proposition of FedEx Still Applies

I know many of us, myself included, are getting tired of the phrase the “new normal.” But if we’re honest with ourselves, we are making modifications to our “normal” way of doing things.

However I’m old enough to remember when FedEx was brand new. The idea of being able to receive something overnight or even in one or two business days was life changing. Back then, the company’s slogan was “when it absolutely, positively has to be there overnight.”

Today, of course, we have at least one if not two generations for whom receiving the next day is considered table stakes. And some retailers, in an attempt to stay relevant, are even offering their customers same day delivery on certain items.

And that’s one reason why the FedEx numbers are impressive. The company has managed to successfully pass along higher shipping costs to consumers who are willing to pay them. Just a year ago, consumers were loath to pay shipping costs at all. Now they’ll pay whatever it takes.

Another Reason The FedEx Rally Has Legs

One thing that came out during the company’s earnings report is that FedEx along with UPS and DHL are going to be an integral part of distributing any Covid-19 vaccine(s) throughout the world. In the retail world, “the last three feet” had to do with the point of purchase. Making sure those retailers could close the sale when the customer was in the store.

The last three feet for the Covid-19 vaccine is the critical act of making sure the vaccine is widely available. But this isn’t just any delivery.  Any vaccine candidate has to be shipped at specific temperatures and delivery is extremely time sensitive.

This catalyst was a reason that Rick Paterson of Loop Capital gave FDX stock a $372 price target. Said Paterson, “FedEx (UPS, and DHL) could well be the primary global transportation networks for the Covid-19 vaccines, assuming of course they’re developed as currently expected.”

FedEx Stock Is a Strong Buy

FedEx was facing the argument that the stock was fully valued. I think it’s safe to say that may have overstated things.  I would expect that post earnings FedEx stock will make a strong run at its all-time high of around $275 before the end of the year, and maybe even sooner than that. There is no reason to believe its revenue stream is slowing down.

First, even if (and that’s a big if) a vaccine candidate can be ready by the end of the year, it will be months before it is available for wide-spread use. And that doesn’t take into account the question of whether individuals will take the vaccine. With that in mind, the restrictions in our economy are going to remain in place.

And even when those restrictions are relaxed, I sense we’ve reached an inflection point and there’s no going back. The novel coronavirus has given e-commerce the opportunity to prove itself. And it’s done so with flying colors. I don’t think I’m being an alarmist or a sage to say that shopping is not going back to what it used to be.

FedEx may not be a forever stock. But for the rest of 2020 and maybe beyond, FedEx is absolutely, positively a buy.