To The Moon

$FedEx(FDX)$

FedEx Corporation (NYSE: FDX), a global leader in logistics, recently reported mixed quarterly earnings as it navigates a complex macro environment, rising competition, and the ongoing effects of its cost-cutting transformation. Despite a bumpy freight landscape and soft global trade activity, the company’s profit margins are showing signs of resilience, driven by operational efficiency and its “DRIVE” restructuring initiative.

But with the stock hovering near all-time highs and macroeconomic uncertainty casting a long shadow over volume recovery, the key question for long-term investors remains: Is FedEx still a compelling investment in 2025, or is it time to reevaluate the risk-reward profile?

In this deep dive, we’ll examine FedEx’s latest earnings performance, fundamentals, cash generation, and valuation metrics—while also exploring key risks, market sentiment, and whether FDX stock still holds long-term upside.

Earnings Overview: A Mixed Quarter Driven by Cost Discipline

FedEx’s fiscal Q4 2024 results, reported on June 25, offered a glimpse into the ongoing balancing act between cost containment and sluggish shipping volumes.

Headline numbers:

• EPS: $5.41 (non-GAAP), beating consensus estimates of $5.34

• Revenue: $21.7 billion, missing estimates of $22.0 billion

• Operating Income: $1.65 billion, up from $1.46 billion YoY

• Operating Margin: 7.6%, up 60 bps YoY

While revenue declined YoY due to volume softness across FedEx Express and Ground, the company still managed to expand margins through reduced headcount, route consolidation, and aircraft rationalization. That performance demonstrates the power of the DRIVE initiative—a multi-year efficiency program targeting $4 billion in annual cost savings by FY2025.

FedEx Ground remained a relative bright spot, with better-than-expected margins of 14.8% thanks to cost efficiencies and disciplined pricing. FedEx Express, however, continues to struggle with soft international volume and higher maintenance expenses, dragging down consolidated revenue growth.

Fundamental Analysis: Leaner and More Focused, But Growth Slowing

From a fundamentals perspective, FedEx is a tale of two themes: robust cost discipline and operating margin improvement on one hand, and deteriorating revenue growth on the other.

Key Metrics (FY 2024):

• Revenue: $87.7 billion (down 2% YoY)

• Operating Income: $6.3 billion (up 9% YoY)

• Operating Margin: 7.2% (up from 6.5%)

• Net Income: $4.1 billion

• ROIC: 9.7% vs. 8.3% last year

Management’s focus on returning capital to shareholders is also evident, with over $3.5 billion in share repurchases during FY2024 and a 10% dividend increase announced for FY2025. CapEx has been reined in, signaling more discipline in long-term capital allocation.

Still, volume remains a drag. Total package volume declined mid-single digits YoY across both Express and Ground. With e-commerce tailwinds moderating and B2B shipping still below pre-pandemic levels, FedEx must find ways to stabilize its revenue base beyond just cost cuts.

Free Cash Flow: Strong and Stabilizing

FedEx generated $4.2 billion in free cash flow (FCF) in FY2024, a substantial improvement from the $2.2 billion in FY2023. This rebound in cash generation is central to the bull case.

Key FCF highlights:

• Operating Cash Flow: $7.6 billion

• CapEx: $3.4 billion (reduced from $6.0 billion in FY2022)

• FCF Margin: 4.8%

• FCF per Share: ~$16.80

Management guided for $4.5 billion to $5.0 billion in FCF for FY2025, assuming continued margin expansion and modest revenue recovery. This FCF strength supports dividend growth, buybacks, and potentially deleveraging.

With CapEx normalization now in play, FedEx is reaching a new phase of capital efficiency. But without a strong demand recovery, there’s a limit to how long cost cuts alone can power cash flow growth.

Market Sentiment: Cautious Optimism

Wall Street sentiment has shifted from bearish to cautiously optimistic in 2025. After a rough stretch in 2022–2023 marked by missed earnings and inflation headwinds, FedEx has steadily rebuilt credibility.

Recent analyst commentary:

• Barclays raised its target to $320, citing margin strength and disciplined execution.

• Goldman Sachs maintains a Buy with a $305 PT, highlighting the tailwinds from DRIVE.

• Morgan Stanley, however, remains Neutral, pointing to downside risk if macro demand falters in 2H 2025.

The stock has garnered increased interest from institutional investors, especially those seeking income and FCF stability. Hedge fund ownership has also ticked up in recent quarters, signaling tactical interest in cyclical transportation plays.

Options activity remains bullish, though call skew has moderated in recent weeks.

Risks and Challenges Ahead

Despite progress, FedEx faces several structural and cyclical headwinds:

1. Macroeconomic Weakness: Global trade remains fragile, and any slowdown in U.S. or EU growth could derail volume recovery.

2. Amazon Threat: Amazon continues to expand its logistics network, including last-mile capabilities. That creates long-term disintermediation risk.

3. Labor Costs: While non-union FedEx is more flexible than UPS, wage inflation and driver shortages remain key cost concerns.

4. Geopolitical Exposure: FedEx Express is highly exposed to Asia and Europe—any escalation in trade restrictions or regional conflicts could hurt performance.

5. Execution Risk: Integrating technology upgrades and optimizing network operations under DRIVE is complex—missteps could erode margin gains.

6. E-Commerce Plateau: The e-commerce boom is slowing post-COVID, creating a more competitive and margin-sensitive shipping environment.

7. Fuel and Jet Costs: FedEx’s reliance on air freight makes it vulnerable to oil price spikes and aircraft maintenance inflation.

7 Key Insights for FedEx Investors

1. Margin Expansion Is Real and Sustainable The DRIVE program is helping lift operating margins despite flat revenue growth.

2. Volume Weakness Remains a Concern Structural changes in global trade and e-commerce saturation are slowing top-line growth.

3. Free Cash Flow Generation Has Stabilized Lower CapEx and tighter cost controls have restored FCF strength, boosting shareholder returns.

4. Valuation Is Still Reasonable Even after a strong rally, FDX trades below peers on EV/EBITDA and P/E metrics.

5. FedEx Ground Outperformance Offsets Express Weakness FedEx Ground continues to post strong margin performance, helped by automation and outsourcing.

6. Capital Returns Are Accelerating Management is aggressively repurchasing shares and growing dividends, supporting long-term compounding.

7. Macro and Competitive Risks Limit Upside Volume headwinds and Amazon’s growing network cap potential upside in the near term.

Valuation: Is FDX Stock Still Cheap?

After rising over 45% from its 2023 lows, FDX stock is no longer a deep-value play. However, compared to historical averages and peers, its valuation remains reasonable—especially given the margin expansion and FCF growth.

Valuation metrics (as of July 2025):

• Forward P/E: ~13.2x

• EV/EBITDA: ~8.6x

• P/FCF: ~14.5x

• Price/Sales: ~0.6x

• Dividend Yield: ~2.0%

• PEG Ratio: ~1.3

Compared to UPS (trading at ~16x forward earnings), FedEx still trades at a discount—though the gap has narrowed. The lower multiple reflects investor caution around FedEx Express, macro trade volume risk, and weaker international performance.

The market is willing to give FedEx credit for efficiency and capital return, but it’s not pricing in aggressive growth assumptions—yet.

Conclusion: Is FedEx Still a Buy in 2025?

FedEx has executed well in a tough environment. Management deserves credit for improving profitability, optimizing its capital structure, and navigating weak volume trends with cost discipline and operational rigor.

While FDX is no longer the value trap it was in 2022, it remains a fundamentally solid business with strong cash flow, margin upside, and shareholder-friendly policies. That makes it a solid core holding for investors seeking exposure to industrial logistics, global trade recovery, and stable income growth.

But risks remain. Without a pickup in global shipping volume or renewed B2B strength, revenue growth will remain constrained. Execution on the DRIVE program must be flawless, and the Amazon threat will persist as a long-term overhang.

For investors with a 3–5 year horizon, FedEx still offers attractive risk-reward—especially if the macro environment stabilizes and cost discipline continues to deliver FCF upside. However, given the recent rally, a more cautious “Buy on Dips” approach is warranted, rather than chasing at current highs.

Final Verdict: FedEx is a structurally improved, cash-generating machine in transition. Not a screaming buy, but still worth holding for disciplined, long-term investors.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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