We believe that Amazon stock (NASDAQ
NDAQ
FDX
AMZN
Looking at stock returns, AMZN has fared slightly better with 35% returns this year, while FDX is up 28%, and the broader S&P500 index is up 7%. There is more to the comparison, and in the sections below, we discuss why we believe Amazon will offer higher returns than FedEx in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of FedEx vs. Amazon: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Amazon’s Revenue Growth Is Better
- Amazon’s revenue growth has been better, with a 22.7% average annual growth rate in the last three years, compared to 10.7% for FedEx.
- The revenue growth over the recent years for both companies was driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in e-commerce growth.
- Even if we look at the last twelve months, Amazon fares better with sales growth of 9.4% vs. 1.0% for FedEx.
- Our FedEx Revenue Comparison and Amazon Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, Amazon’s revenue is expected to grow faster than FedEx’s over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 16% for Amazon, compared to a 5% CAGR for FedEx, based on Trefis Machine Learning analysis.
- Now, the big e-commerce surge seen through the lockdown phase of the Covid-19 pandemic has now cooled off, resulting in lower ground shipment volume for logistics companies.
- For perspective, FedEx has seen an 11% fall in average daily package volume for its Express
EXPR
- Amazon has more revenue streams, including online and physical stores, third-party seller services, subscription services, advertising services, and amazon web services, making it comparatively less vulnerable to a decline in demand.
- In fact, the company posted better-than-expected results in the first quarter of 2023, with net sales increasing by 9% y-o-y to $127.4 billion. It was due to an 11% rise in the North America segment and a 16% growth in Amazon Web Services revenues.
- Furthermore, it expects the revenues to remain between $127 billion to $133 billion in Q2 2023, reflecting a 5% to 10% y-o-y growth.
- That said, it is not all rosy for Amazon. Its key segment – AWS – showed signs of cooling with customers trying to cut costs, and this did not bode well with the investors, who assign a higher weight to this segment, given its superior profitability.
- Still, it seems that Amazon is poised for more robust growth compared to FedEx in the near term, especially with its advertising business expanding at a fast pace.
- Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
2. FedEx Is More Profitable
- FedEx’s operating margin has risen from 2.6% in 2019 to 6.6% in 2022, while Amazon’s operating margin increased from 5.8% to 7.2% over this period.
- However, looking at the last twelve months period, Fedex’s operating margin of 4.7% fares better than 3.8% for Amazon.
- The decline in operating margin for FedEx can be attributed to higher operational costs, primarily fuel, and declining volumes. Amazon has also seen a rise in operating expenses in the recent past, including its spending on sales and marketing.
- Our FedEx Operating Income Comparison and Amazon Operating Income Comparison dashboards have more details.
- FedEx’s free cash flow margin of 9.6% is higher than 8.1% for Amazon.
- Looking at financial risk, Amazon fares better with its 4.2% debt as a percentage of equity significantly lower than 85.6% for FedEx and its 22.6% cash as a percentage of assets higher than 6.3% for the latter, implying that Amazon has a better debt position and more cash cushion.
3. The Net of It All
- We see that Amazon has demonstrated better revenue growth and has a better debt position and cash cushion. This also explains its higher P/S multiple compared to FedEx.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Amazon is still the better choice of the two, despite its higher P/S multiple.
- If we compare the current valuation multiples to the historical averages, Amazon fares better, with its stock currently trading at 2.3x trailing revenues vs. the last five-year average of 4.1x. In contrast, FedEx’s stock trades at 0.6x trailing revenues vs. the last five-year average of 0.7x.
- Our FedEx Valuation Ratios Comparison and Amazon Valuation Ratios Comparison offers more details.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 15% for FedEx over this period vs. a 57% expected return for Amazon, based on Trefis Machine Learning analysis – FedEx vs. Amazon – which also provides more details on how we arrive at these numbers.
While AMZN may outperform FDX in the next three years, it is helpful to see how FedEx’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FedEx vs. Amerco.
Despite higher inflation and the Fed raising interest rates, FedEx stock has risen 28% this year. But can it drop from here? See how low FedEx stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
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