With Holiday Sales Eyeing a Record, Can FedEx Transport your Portfolio Higher?

Tuesday, November 29th, 2016

The year is coming to an end and the holiday season is now officially upon us. With the holiday season comes holiday shopping, and this year the outlook is very bright.

It is expected holiday sales will grow 4.1% when compared to last year. This would be the first time since 2012 we have seen a growth rate over 4%. Total retail sales from November-December are expected to hit a record of $632 Billion.

Based on Adobe’s software, the high expectations for retail sales seem to be doable thanks to a strong Thanksgiving weekend.

This year Black Friday saw a record of $3.34 billion in online sales, which was up 21.6% compared to last year. Thanksgiving Day, coupled with Black Friday, saw total sales of $5.27 billion. This surpasses the two-day period for 2015 by 17.7%.

Cyber Monday yielded yet another record with $3.45 billion in sales. This was 12.1% more than Cyber Monday 2015.

With the incredible strength demonstrated over the past holiday weekend, there is reason to believe the strength in holiday spending will continue throughout the rest of the year.

The strength in consumer confidence could be a major key to spending this holiday season.

Consumer confidence for November 2016 was released this morning, with a reading of 107.1. This came in well above the consensus estimate of 101.0 and the prior reading of 100.8.

The November reading is, in fact, the highest consumer confidence has seen during the current economic cycle. This is very important, because a confident consumer is more likely to be a spending consumer.

The consumer is feeling great for a couple of different reasons. The major one is the election has now passed, and much of the side noise has dissipated.

Throughout the election process, it is believed the consumer created pent-up demand. Now that the distracting process has ended, many are ready to spend again.

The health of the consumer’s financial picture is also much better than it has been in recent years. With a rising stock market, rising home prices, and reasonable debt, the consumer feels much better about their financial situation.

Consumers are also feeling better about the prospects for job openings and rising wages, which also make them feel good and willing to spend.

With the expectations of higher spending, where will consumers be spending their money?

Apparel, jewelry, big TV’s, and Apple iPhones seem to be areas the consumer is leaning towards. Just because these are areas that could do well this holiday season, make sure you do your research on a company before buying for your portfolio this holiday season.

Another company that could benefit from the healthy holiday season and increased online spending is FedEx Corporation. The current price is $190.32 and the 52-week range is $119.71 - $191.84.

Sales have grown 9.8% over the last 12 months and EPS has risen 57.0% during the same timeframe. It appears this can be attributed to nonrecurring costs that took place in Fiscal 2015 and 2016.

In both years, the company incurred other operating expenses of over $8 billion. Before thinking about investing in this company, it would be important to understand what exactly those other expenses entail.

Turning to the balance sheet, the company has strong liquidity ratios. With a current ratio of 1.53, it shows they are very capable of paying its next 12 months of liabilities with 12 months of assets.

The quick ratio of 1.46 makes the company’s liquidity even more impressive. The quick ratio excludes inventory from the current assets and makes for an even better measure of liquidity.

Debt/equity of 97.45% is in a warning zone, as it is near 100%. It is crucial to understand if FedEx’s debt has been increasing and if so, why.

Looking forward to May 2018, estimated GAAP EPS of $13.20 gives us a target sell price of $217.80. This is currently 14% away from the current price.

Based on the forward earnings, this company would be on the hold list, as it does not give us a 30% safety margin.  

Do you have a question or a company you'd like us  to take a look at? Email us at Brent@WilseyAssetManagement.com or Chase@WilseyAssetManagement.com.


Brent Wilsey is president of Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760. 

Chase is a financial analyst for Wilsey Asset Management and can be heard every Saturday at 8 a.m. on KFMB AM760 as the co-host for the Smart Investing show with his father Brent Wilsey. Information is provided by Reuters.