Text size
Stock in logistics giant FedEx spiked around noon on Friday, up more than 5%, after the company said it would “optimize” last-mile residential deliveries. It’s a strange stock move for what amounts to a minor Friday afternoon news release.
FedEx stock (ticker: FDX) tacked on $1.5 billion in market value for, essentially, announcing it is working hard on e-commerce. No one should be surprised by that. Barron’s isn’t besmirching the idea, we like the stock, but the importance of e-commerce for delivery networks should go without saying.
Here’s what the company is saying: FedEx Express—which is the rapid delivery network—is contracting with FedEx Ground—the trucking network—to deliver some Express packages if the Ground unit “can meet the service commitment.” That’s the optimization FedEx is talking about.
Why the stock market optimism? In theory, the organizational tweak means lower costs for last-mile e-commerce shipping. That’s a good thing. FedEx wasn’t immediately available to comment beyond the press release.
“We continue to flex our network to stay ahead of e-commerce growth, and that includes adjustments to better handle the demand for residential deliveries while lowering our cost to serve,” said FedEx COO Raj Subramaniam in the news release. “This allows FedEx Express to continue to do what it does best—delivering business-to-business and premium business-to-consumer time-sensitive packages.”
Last-mile, e-commerce volumes have become hotly contested. Amazon.com (AMZN) wants to deliver packages. Walmart (WMT) is looking to deliver packages. And, of course, the Post Office is an option as is United Parcel Service (UPS). The issue for investors is whether everyone can make money in e-commerce logistics. Volumes are growing, but there are a lot of players looking for a piece of the pie.
That concern is reflected in FedEx’s share price. The stock trades for 13 times calendar 2020 earnings estimates, a big discount to the market. What’s more, the stock is down about 15% over the past 12 months, trailing far behind the Dow Jones Industrial Average and S&P 500 over the same span.
FedEx stock was recently up 5.1% at $156.16.
Barron’s believes FedEx, with its billions of network investments, can be an e-commerce winner. We recently recommended FedEx stock. Since the story appeared in July, shares are down about 8%. That’s not great, but we aren’t giving up hope.
Still, the Friday jump surprised us. Lower costs would position FedEx a little better versus peers, but no one should be surprised the company is working to lower costs. That’s what all companies, or good companies, should be doing every day.
Write to Al Root at allen.root@dowjones.com