FedEx Corporation (FDX), a leading U.S. package delivery company, is expanding its services across U.S., Canada and Mexico. The company aims to tap a potential business opportunity in NAFTA (North American Free Trade agreement) markets through its expansion plans.
The company is expanding its Priority next-day services in its FedEx Freight segment by opening a new service centre in Rochester, New York. The new service centre will cater to 13 U.S. and Canadian markets dealing in cross border shipments to and from Toronto and Montreal.
In Mexico, the company added two new service centers – one each in Culiacán and Silao. By introducing these two centers, FedEx would strengthen its freight network in northwestern and north central part of Mexico. Further, in its Freight segment, management intends to invest in technology to upgrade network and equipment and automation planning in order to enhance customer service levels.
FedEx’ other improvement plans include productivity enhancements in the Ground segment like automation of the planning and execution of free load and pickup and delivery processes. The segment’s trailers are also expected to be equipped with GPS devices to improve fleet management.
We believe near-term earnings growth will be aided by increasing profitability in Freight coupled with continued growth in the Ground segment. Additionally, improving international revenues and operational efficiency in FedEx Express will also support earnings going forward.
FedEx is boosting its international business through substantial investments to enhance its existing routes and make strategic acquisitions. The company is building a new hub in Guangzhou, China, for catering to100 new Chinese cities within the next five years. Recently, the company announced to invest $100 million in China in order to strengthen its competitive position in the Chinese markets against its rival – United Parcel Service, Inc. (UPS)
As for acquisitions, the company completed the take over of Polish courier Company Opek Sp. z o.o. in June this year and French B2B Express transportation company, TATEX in July.
Following this, the company acquired Rapidão Cometa, a Brazilian transportation and logistics company. We believe the investments in organic growth as well as acquisitions will lead to greater operational efficiencies, providing a competitive edge, generating significant long-term synergies, supporting international business growth, and driving higher profitability.
The stock currently has a Zacks #3 Rank, implying a short-term Hold rating. For the long-term, we have an Underperform recommendation on FedEx.
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