FedEx Corporation: Strengths, Weaknesses, Opportunities, Threats
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off a decent first quarter earnings report, I would like to focus on one of the largest shipping companies in the world, FedEx (NYSE: FDX).
- Revenue Growth: In 2008, FedEx reported revenue of $38 billion; in 2012 the company reported revenue of $42.7 billion, representing a year over year annual growth rate of 2.96%, and while this may not seem like an explosive number, the caliber of growth is solid and expected to accelerate into the future, with 2015 revenues reaching nearly $49 billion.
- Established Distribution System: The company possesses a massive fleet of airplanes, trucks, locations, and employees, and is distinctly established and has the capability of transporting thousands of packages every day.
- Dividend: The company currently pays out a quarterly dividend of $0.14, which annualized puts the dividend as yielding 0.62%.
- Reasonable Valuation: The company carries a price to earnings ratio of 14.02, which by nearly all standards is a relatively reasonable valuation.
- Institutional Vote of Confidence: 78% of shares outstanding are held by institutional investors, displaying the huge amount of confidence long-term and big-money investors have in the company and its future.
- Money on the Balance Sheets: The company currently has $1.176 billion in cash or cash equivalents on its balance sheet, a large cushion for times of economic downfall.
- Relative Small Size: Compared to UPS, FedEx is considered a rather small company, and in an industry in which consumers have to put their trust in a company to get their product to a place on time, consumers often turn to the largest company with the best reputation.
- Margins: FedEx’s net profit margin is only 4.76%, leaving little room for the company to swallow rising input costs.
- Declining Cash Flow per Share: In 2012, the company possessed $17.00 of cash flow per share, however in 2013 the average analysts estimates show the cash flow per share only reaching $14.60, representing a 14.12% year over year decline.
- Acquisitions: During the 2012 year FedEx has acquired Rapidao Cometa, Opek Sp., and TATEX; and further acquisitions are a strong possibility into the future, as FedEx has the capability and money to do so.
- Holiday Season: A large portion of FedEx’s business is derived from the holiday season rush, and it is crucial that they execute perfectly to take full advantage of this opportunity, as they are expecting an 13% increase in shipments, and have prepared by hiring their usual wave of seasonal workers.
- Gaining Market Share: There is fierce competition in the shipping industry, especially around the holiday season, and FedEx has been running a fierce marketing campaign recently to try to capture crucial market share, which would significantly help business.
- Converting Fleet to Natural Gas: Companies are developing trucks and cars that are capable of running on natural gas, and companies such as Waste Management have already begun to convert their fleets to be capable of running on natural gas, which is substantially cheaper than running on oil.
- Competition: The shipping industry is a highly competitive landscape which has several massive companies operating in it, and the competition to offer the best quality for the lowest price leads to margin contraction.
- Rising Oil Prices: FedEx’s average cost per gallon of jet fuel or oil has more than doubled over the past five years, and according to the wide majority of analysts, oil and jet fuel prices are only set to rise further into the future, squeezing FedEx’s margins as they face the decision of swallowing the pain or passing it onto their customers.
- Weather Uncertainty: Like we have seen most recently with Hurricane Sandy, natural disasters can bring business to a complete stand-still, leaving FedEx with no capabilities to fly their planes and get their packages to the right place at the right time.
Major publically-traded competitors of FedEx include United Parcel Service (NYSE: UPS) and J.B. Hunt Transport Services (NASDAQ: JBHT). UPS is much larger than FedEx and competes directly with FedEx as they offer similar if not identical services. UPS pays out a relatively large dividend, however carries a price to earnings ratio around 20. J.B. Hunt is also a transportation company, however is more focused on transporting large bulks of packages, compared to delivering directly to the customer. J.B. Hunt carries a price to earnings ratio north of 20, however is fueled by faster paced growth.
The Foolish Bottom Line
FedEx possesses several strengths, weaknesses, opportunities, and threats; however in the end appears to be a financially strong company with a predictable future. While fuel prices are a major threat to FedEx’s profits, FedEx possesses solid and stable growth in the low single digits. When oil prices are brought under control, FedEx will be a tremendous cyclical staple of the world economy, and will be a great long-term investment, but until then FedEx is just too vulnerable to rising oil prices.
makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool owns shares of FedEx. Motley Fool newsletter services recommend FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.