Stock Analysis on Net

FedEx Corp. (NYSE:FDX)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

FedEx Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 16.71%
01 FCFE0 2,989
1 FCFE1 3,252 = 2,989 × (1 + 8.79%) 2,786
2 FCFE2 3,562 = 3,252 × (1 + 9.55%) 2,615
3 FCFE3 3,929 = 3,562 × (1 + 10.30%) 2,472
4 FCFE4 4,364 = 3,929 × (1 + 11.06%) 2,352
5 FCFE5 4,880 = 4,364 × (1 + 11.81%) 2,253
5 Terminal value (TV5) 111,409 = 4,880 × (1 + 11.81%) ÷ (16.71%11.81%) 51,449
Intrinsic value of FedEx Corp. common stock 63,928
 
Intrinsic value of FedEx Corp. common stock (per share) $261.65
Current share price $279.32

Based on: 10-K (reporting date: 2024-05-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.48%
Expected rate of return on market portfolio2 E(RM) 13.84%
Systematic risk of FedEx Corp. common stock βFDX 1.31
 
Required rate of return on FedEx Corp. common stock3 rFDX 16.71%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rFDX = RF + βFDX [E(RM) – RF]
= 4.48% + 1.31 [13.84%4.48%]
= 16.71%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

FedEx Corp., PRAT model

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Average May 31, 2024 May 31, 2023 May 31, 2022 May 31, 2021 May 31, 2020 May 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared 941 1,495 793 686 679 683
Net income 4,331 3,972 3,826 5,231 1,286 540
Revenue 87,693 90,155 93,512 83,959 69,217 69,693
Total assets 87,007 87,143 85,994 82,777 73,537 54,403
Common stockholders’ investment 27,582 26,088 24,939 24,168 18,295 17,757
Financial Ratios
Retention rate1 0.78 0.62 0.79 0.87 0.47 -0.26
Profit margin2 4.94% 4.41% 4.09% 6.23% 1.86% 0.77%
Asset turnover3 1.01 1.03 1.09 1.01 0.94 1.28
Financial leverage4 3.15 3.34 3.45 3.43 4.02 3.06
Averages
Retention rate 0.71
Profit margin 3.72%
Asset turnover 1.02
Financial leverage 3.29
 
FCFE growth rate (g)5 8.79%

Based on: 10-K (reporting date: 2024-05-31), 10-K (reporting date: 2023-05-31), 10-K (reporting date: 2022-05-31), 10-K (reporting date: 2021-05-31), 10-K (reporting date: 2020-05-31), 10-K (reporting date: 2019-05-31).

2024 Calculations

1 Retention rate = (Net income – Cash dividends declared) ÷ Net income
= (4,331941) ÷ 4,331
= 0.78

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 4,331 ÷ 87,693
= 4.94%

3 Asset turnover = Revenue ÷ Total assets
= 87,693 ÷ 87,007
= 1.01

4 Financial leverage = Total assets ÷ Common stockholders’ investment
= 87,007 ÷ 27,582
= 3.15

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.71 × 3.72% × 1.02 × 3.29
= 8.79%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (68,244 × 16.71%2,989) ÷ (68,244 + 2,989)
= 11.81%

where:
Equity market value0 = current market value of FedEx Corp. common stock (US$ in millions)
FCFE0 = the last year FedEx Corp. free cash flow to equity (US$ in millions)
r = required rate of return on FedEx Corp. common stock


FCFE growth rate (g) forecast

FedEx Corp., H-model

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Year Value gt
1 g1 8.79%
2 g2 9.55%
3 g3 10.30%
4 g4 11.06%
5 and thereafter g5 11.81%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 8.79% + (11.81%8.79%) × (2 – 1) ÷ (5 – 1)
= 9.55%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 8.79% + (11.81%8.79%) × (3 – 1) ÷ (5 – 1)
= 10.30%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 8.79% + (11.81%8.79%) × (4 – 1) ÷ (5 – 1)
= 11.06%