The BMW Method
FedEx Analysis

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By whatismyoption
May 21, 2008

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Will you accept delivery?

On the 16 year BMW Method chart FedEx (FDX) sits at -2.4 RMS, with a RF of 1.45. For a company with an average CAGR of 16.3% over that time, an excellent moat and bright future, FDX is a great prospect.

We have discussed FDX before and with recent discussions of the adjusting the examining the charts it is worth noting on the 20 year and 25 year charts FDX is respectively -1.72 and -0.35 RMS.

Almagne addressed this issue here. In summary, around 1990, FedEx transitioned from a business shipper to the global delivery company they now are, and Almagne argued that the more recent charts should be given more weight.

BMW and others had some thoughts on FDX back in 2005. Most recent thread I could find where we discussed FDX in November 2007.

I have yet to re-check my summary from that thread; can anyone see any glaring errors?
10 reasons to like FDX (here's hoping I can get that many, fingers crossed)
- 16 year BMWm chart indicated a good price to buy
- Gross and operating margins have been improving consistently over the last decade.
- Still led by 60 year old founder who owns almost 5% of company
- Enduring growing business (China and India) with the threat of teleportation still decades if not centuries away ;-)
- Trading at 15x this years and 13x next years earnings. Historically very cheap.
- Improving return on assets and equity.
- Dividend low, but growing and if they stop investing in growth and convert more of earnings to free cash flow there is plenty of room for dividend growth.
- Plenty of scope to tighten their belt in a slowing environment.
- Low risk with minuscule chance of loss of capital
- From the -1RMS FDX has produced CAGR returns of above 25% every single time (yeah I just guessed that from eyeballing the chart, I'd wouldn't mind being corrected)
- Diversified across the globe

What's not to like
- Possibly investing too early, if we are on the verge of a slowing global economy.
- Will they ever convert earnings in to free cash flow?
- The founder is also the unholy trinity of CEO, President and Chairman and despite owing around two billion dollars in stock still likes to be paid very well in both cash and options
- Unions are starting to gain influence with FedEx (my dad would choke if he saw me putting that as a negative)

Many of those above points were discussed in the November thread. I'm not yet ready to conclude anything, but I'll make sometime later to dig deeper. With Gary throwing out the selling puts prompt (thanks) I thought some people may want to add FDX to their prospects.

Also anyone care to give a summary on AXP?