Shares of FedEx Corp. (NYSE:FDX) climbed more than 10.1% in January, according to data provided by S&P Global Market Intelligence, as fears of a prolonged trade war with China and a global slowdown subsided.
FedEx's steady upward swing throughout the month coincided with increased Wall Street optimism concerning the broader market, and was aided by a softening of rhetoric between Washington and Beijing. The gains, while solid, were not nearly enough to offset the company's 30% decline in December after it gave tepid full-year guidance due to concerns about trade wars and the health of the global economy.
Investors have also been concerned about Amazon's (NASDAQ:AMZN) growing delivery ambitions. A late-January report by Loop Capital analyst Anthony Chukumba suggesting Amazon could buy FedEx provided an added spark to the shares, though such a deal seems unlikely due to regulatory issues.
Chukumba was correct in saying FedEx is inexpensive, trading at about 11.45 times forward earnings estimates compared to archrival UPS's multiple of 14.12. FedEx's multiple dipped below 10 times projected earnings early in the month, before the share upswing began.
The issues that caused FedEx shares to drop in December are still a concern, but the market overreacted to poor guidance. The company's shares, even after the January recovery, still trade at a discount to their historic range:
Another shock similar to the December decline can not be ruled out, if U.S.-China trade negotiations again turn south, the U.S. economy stumbles, or Amazon releases more information about its shipping ambitions. Long-term investors should note Amazon accounted for less than 2% of FedEx's 2018 revenue, and remember that the company is rapidly looking to expand its international and specialty delivery capabilities to offset any long-term decline in consumer package revenue.
It's hard to predict what will happen to FedEx shares in the months to come, but over the long haul I believe the trend is upwards.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and FedEx. The Motley Fool has a disclosure policy.