Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Grocery Wars

Can FedEx Survive without Amazon?

Investors will ask can FedEx survive without Amazon because the shipping giant is cutting ties with the Everything Store. In particular, FedEx (NYSE: FDX) will not renew an agreement to provide express shipping services for Amazon (NASDAQ: AMZN).

Instead, FedEx will concentrate on providing services to Amazon competitors like Walmart (NYSE: WMT), The New York Times reports. FedEx executives no longer want a close relationship with a growing competitor, The Times speculates.

Amazon is FedEx’s most Dangerous competitor

Accordingly, Amazon is expanding its air-freight service by leasing 15 Boeing 737-800 cargo jets, TechCrunch reports. Moreover, Amazon will open several new air freight facilities in 2019. Plus, Amazon plans to open its main air hub at the Cincinnati/Northern Kentucky International Airport in 2021.

Jeff Bezos intends the Air Hub to be the center of a global Amazon Air Network. Bezos’ hope is the Air Network will speed up Amazon shipments, particularly for Prime members.

Thus, FedEx is making the wise decision of no longer helping a dangerous competitor increase its resources. However, FedEx is taking a serious risk by severing ties with the biggest player in American e-commerce.

Will FedEx Survive without Amazon?

New estimates show FedEx’s action could be smarter than most people realize. Ratuken Intelligence estimates that Amazon’s share of the US e-commerce market is falling, Internet Retailer claims.

Meanwhile, EMarketer Inc. reduced its estimate of Amazon’s share of 2019  US ecommerce sales by 9.3%, Bloomberg reports. Specifically, Emarketer previously projected Amazon’s percentage of US ecommerce sales at 47%. However, EMarkerters cut their projection to 37.7% on 13 June 2019.

If EMarketer and Ratuken are right, FedEx will still serve 66.3% to 62.3% of the US ecommerce market. Additionally, EMarketer’s data indicates Amazon is losing market share.

Is FedEx Making Money?

Financial numbers show why FedEx is cutting its ties with Amazon. FedEx is making less money while its revenues and profits are declining.

For instance, FedEx’s revenues fell from $17.824 billion on 30 November 2018 to $17.10 billion on 28 February 2019. Meanwhile Fedex’s revenue growth rate fell from 10.2% on 28 February 2018 to 2.93% a year later.

Additionally, FedEx’s gross profit collapsed from $10.176 billion on 28 February 2018 to $4.407 billion on February 28, 2019. Plus, FedEx’s net income fell from $2.074 billion in February 2018 to $739 million a year later. However, FedEx’s operating income grew from $858 million in February 2018 to $1.073 billion in February 2019.

These numbers show Amazon’s growing shipping business could cut into FedEx’s profits.

Is FedEx Generating Cash?

Some numbers are improving at FedEx, however. The operating cash flow went from -$336 million in February 2018 to $1.144 billion a year later, for instance.

Additionally, the free cash flow went from -$1.709 billion to $21 million in a year. However, financing cash flow fell from $1.695 billion in February 2018 to $695 billion in February 2019.

Importantly, the level of FedEx’s cash assets remains fairly steady despite the income and revenue drops. For instance, FedEx had $2.789 billion in cash and short-term investments on 28 February 2018 and $2.872 billion a year later.

Thus, I conclude FedEx is a very stable company in an unstable industry. But is it a value investment or a good dividend stock?

Is FedEx a Value Investment?

I think Mr. Market overprices FedEx but it is a good dividend stock. Notably, I believe the $162.095 price for FDX on 24 June 2019 was too high.

However, FedEx will pay a decent dividend of 65₵ on 8 July 2019. Appealingly, the FedEx dividend grew from 50₵ on 2 April 2018 to 65₵ on 9 July 2018. Therefore, there is no dividend growth at FedEx this year.

Consequently, nine years of dividend growth at FedEx could be ending. However, FedEx is still an excellent dividend stock. Accordingly, calculates FedEx delivered a dividend yield of 16%, an annualized payout of $2.60 and a payout ratio of 15% on 24 June 2019.

The Many Threats to FedEx

However, I believe FedEx is not a value investment because of the all competition it faces these days. BeyondUPS (NYSE: UPS) FedEx faces many retailers that are following in Amazon’s footsteps by developing their own shipping and delivery capabilities.

Walmart; for instance, is experimenting with unlimited grocery delivery, concierge services, and self-driving delivery trucks. Meanwhile, Target (NYSE: TGT) owns the delivery app Shipt and Instacart is experimenting with office supply and drug delivery in Canada.

Given these developments, FedEx may not profit from the explosive growth of Amazon competitors. Instacart; in particular, threatens FedEx with a workforce of low-cost contractors who supply their own vehicles.

Will Soccer Moms help Delivery Apps Destroy FedEx?

Strangely, Instacart, Postmates, Grubhhub (NYSE: GRUB), Shipt, and DoorDash’s secret weapon in the war on FedEx, UPS and Amazon is soccer moms. National Public Radio (NPR) reports that over 50% of food and grocery delivery apps contractors are suburban women in their 40s and 50s.

Delivery apps attract the moms with flexible schedules that do not involve hauling strange men around in their vehicles, NPR explains. Plus, many of those women do not need benefits because their husbands’ health insurance covers them.

However, there are limitations including the weight of items some women can deliver. Plus, some women refuse to deliver business orders because they are large and come with lower tips, NPR claims.

Thus, there could still be a niche for FedEx in today’s delivery landscape. I think FedEx could deliver long-distance and commercial orders while apps like Instacart handle groceries and local delivery orders. For instance, delivering clothing you order from the local Nordstrom or Walmart or your mother’s prescriptions.

Is FedEx a Good Investment?

Under present circumstances, FedEx is a good stock that Mr. Market overprices but Federal Express has a growing market.

Statista projects US ecommerce sales will grow from $504.582 billion in 2018 to $735.358 billion in 2023. Thus American ecommerce revenue could grow by $230.776 billion in five years. However, Ratuken Intelligence and Emarketer data shows Amazon’s share of US online retail is shrinking.

FedEx (NYSE: FDX) is company for value investors to watch but not buy under these circumstances. Federal Express (NYSE: FDX) is is a cash rich company with a good dividend that is making money in a growing market, but Mr. Market overprices it right now. The data shows FedEx could thrive without Amazon.