Thoughts?
_____
FedEx Stock Is So Cheap That Now Amazon Really Should Buy the Company, Analyst Says
By David Marino-Nachison
FedEx stock (ticker: FDX), well off the S&P 500’s pace over the last year, might be a bargain—for Amazon.com (AMZN), according to new research.
Loop Capital Markets analyst Anthony Chukumba, who has a Buy rating and a $2,200 price target on Amazon stock, on Tuesday wrote that if the tech and retail giant wants to become a shipping giant too, buying into the business could be a cost-effective way to do so.
It’s an argument Chukumba has made before—and Barron’s has covered. His latest take, however, puts things in the context of current valuations.
“FedEx is inexpensive at 10.6x and 6.5x forward price-to-earnings and enterprise value to earnings before interest, taxes, depreciation and amortization multiples, respectively,” Chukumba wrote. “Amazon could make an accretive acquisition of the best global network for a fraction of the cost of building it themselves.”
FedEx stock, recently about flat at just under $174, is off nearly 8% in January.
It has fallen some 35% over the last 12 months—principal competitor United Parcel Service (UPS) also dropped, though not quite as much—amid concerns that the battle to compete with Amazon, leading to expensive investments in capacity, was too big a drag on profits.
Amazon, in short, is now widely seen more as a disruptive threat to the shipping companies than a package-bearing boon. (FedEx’s CEO, for his part, doesn’t agree; he called the notion “fantastical” last month.)
Some analysts think FedEx shares can recover on their own. Factset’s average price target is around $223, some 28% above current levels. Chukumba, however, thinks a protracted battle won’t end well for the shipping giants.
“If Amazon does indeed cross the Rubicon to become a serious threat to UPS and FedEx, the former will draw a competitive response, likely in the form of more aggressive pricing by the incumbents, targeting Amazon customers in key lanes, and large price hikes on Amazon itself,” he wrote. “Clearly this is bad for all players.”
Email David Marino-Nachison at
[email protected]. Follow him at nonachison and follow Barron’s Next at @barronsnext.
https://www.barrons.com/articles/fed...ys-51548781426