Downgrade FDX to Hold; current price >$331 exceeds DCF fair value of $313 after recent rally.

FedEx reported 13% revenue growth in its most recently completed quarter, and the company successfully is reducing its operational capacity. Since 2022, there's been an 8% reduction in its fleet size, the management team anticipating headwinds to the number of units being transported.

But does all of this make FedEx stock a buying opportunity? Of course, I've had FedEx stock ranked as a buy for over a year now, and the stock price has performed excellently in that time.

But do I still think it's a buying opportunity? That's the question I want to answer in this video, so let's look at the figures together. So, after experiencing some volatility in its sales figures, FedEx is returning to growth, as I mentioned earlier. 13% top-line growth in the most recently completed quarter, and 8% for the full year.

The company successfully divested away from its FedEx Freight business in June, so that allowed the two entities to operate independently.

FedEx, like UPS, in my opinion, the management teams of these companies have done an excellent job right-sizing the business to account for the reduction in trans- transportation, the reduction in shipments in unit volume due to the increase in trade barriers.

The reduction in fleet size and a new contract with its pilots should allow FedEx's operating profitability to steadily approach 10% again. In the most recent trailing 12-month figure, this figure sat at 7%.

It's not a very profitable business, nor is this a very profitable industry.

FedEx also noted that the capital intensity of the business, the management team is focused on reducing that. They made a commitment to investors for the capital intensity to average around 4% of revenue going forward.

With a business that's generating nearly a hundred billion dollars in sales, that would mean roughly four billion dollars in annual capital expenditures.

That's a shrunk down size of an operational fleet and operation size given the company's historic averages. That's partly the reason why investors have gotten more excited about FedEx.

The company is now a smaller size, a more You can't call this an asset-light business model. It's actually the opposite, but it's moving more towards an asset-lighter business compared to where it was before.

So, on the spectrum of how heavy capital usage a business operates under, FedEx is moving towards more asset-light operations, and that's a big improvement because it's so asset-heavy to begin with.

Those reductions make a meaningful improvement in the company's performance.

And another reason why that's the case is because the returns on invested capital have not been great. I have here a 10-year chart of the company's return on invested capital, and it only exceeded double digits in about three years out of the previous decade.

And when it did, it didn't reach all that much above double digits, 14% at its peak.

So, this is barely above the company's weighted average cost of capital. And when you're plowing capital into a business with such low returns on invested capital, it's not giving investors very much return on that investment.

You're taking risk, you're missing out on the opportunity cost of that capital, and you're not getting very much in return.

I mentioned FedEx stock is performing excellently. It's up over 42% year-to-date in 2026 plus dividends. I mentioned they've had this stock ranked as a buying opportunity and I last updated this ranking on September 2nd September 22nd, 2025.

This isn't the company that I follow all that frequently.

And so given the share price increase since my last update, FedEx is now trading at a forward price to earnings of 15.9. That's near the highest end of where this stock has traded for according to this valuation metric going back to late 2023.

But the business is a lot different now than it was in recent years.

They've right-sized operations, shrinking the fleet size. They've reduced the capital intensity, keeping it capped at around 4% of revenue. They've also divested their FedEx Freight and split the operations independently.

Today I also updated my discounted cash flow valuation calculation for FedEx and my fair value estimate increased to $313 per share. Given the current market price is above $331 per share, the stock looks fairly valued to slightly overvalued when measuring comprehensively looking at valuation.

So to answer the question I posed early in the video and in the headline, do I think this is a buying opportunity? I would say no. In fact, I'm downgrading FedEx stock to a hold, updating my ranking on August 27th, 2026.

But I have a relatively low conviction level or relatively low confidence level on this ranking because as I mentioned earlier, this isn't the company I follow all that frequently.

And since I don't follow it all that frequently, I don't have as much confidence in my evaluation of the company as I otherwise might have.