Why FedEx Stock Surged 57% in 2013http://www.fool.com/investing/general/2014/01/02/why-fedex-stock-surged-57-in-2013.aspx Adam Levine-Weinberg
January 2, 2014
It took FedEx (NYSE: FDX) stock a while to get off the ground last year, but by the end of 2013, it had registered an impressive 57% increase. FedEx's strong gains since May indicate that investors are becoming comfortable with its restructuring plans, and that they are excited about the company's stepped-up share repurchase program.
After this strong 2013 performance, FedEx stock is likely to take a breather in 2014. FedEx now trades for 16 times the average analyst estimate for fiscal year 2015 earnings. While the company has good long-term upside due to the growth of e-commerce and improved efficiency, at this point it no longer seems dramatically undervalued.
The promise of profit
It took a little while for the cost cuts to start kicking in. The express division routinely delivered an operating margin around 5% from fiscal year 2010 through fiscal year 2012, but for the fiscal year ending in May, the operating margin fell to 2%.
These recent results have been far short of FedEx's goal of maintaining an operating margin of at least 10% in each of its business segments. However, the express segment started to bounce back in the last two quarters as the early cost cuts start to take hold. The operating margin for the division rose to 3.6% in the August quarter and hit 4.8% in the November quarter (the second quarter of fiscal 2014).
This trend bodes well for FedEx's earnings in the next few years. There are plenty of additional cost cuts to come, which should drive the operatin