Is FedEx Corporation (FDX) an Ackman Pick?

United Parcel Service, Inc. (NYSE:UPS) is trading at $86.10 per share, with the total market cap of $81.30 billion. The market values the company at an extremely high valuation at 28.7 times its trailing EBITDA. Investors seem to be disappointed with the fact that the company’s management has cut its full-year guidance. Recently, United Parcel Service, Inc. (NYSE:UPS) warned investors that its second quarter EPS could be around $1.13 per share, lower than analysts’ estimates of around $1.20 per share. It also reduced its full year EPS guidance, from $4.80-$5.06 to only $4.65-$4.85 per share. The sluggish outlook for the year was due to growing customer preference for lower-yielding shipping solutions, slower U.S. economy and slower in package volume growth due to labor negotiations. The company’s dividend yield is much higher than FedEx’s, at 2.8%. However, its payout ratio is not very encouraging, as it pays more than 2.5 times higher than its earnings in dividends.

My Foolish take

Among the three, FedEx Corporation (NYSE:FDX) is the best choice with the lowest valuation and consistently positive cash flow generation. However, I personally do not think that the business fits with Bill Ackman’s description of being simple, predictable, free cash generative with high customer switching costs and substantial pricing power. FedEx’s recent gain on the market is purely speculative, and I expect it will experience a downward correction when Bill Ackman announces his pick.

The article Is FedEx an Ackman Pick? originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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