US Public Company FedEx Analysis

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US Public Company Analysis
Introduction and Overview of the Company
FedEx Corporation, commonly known as FedEx, is an American multinational company in the courier ad delivery services industry. The organization was formed from the air division of Federal Express, its parent company. The company’s headquarters are located in Memphis, Tennessee (Basch 14). FedEx Corporation was incorporated as an import-export business in October 1997. The company later formed FDX Corporation in 1998 after it famously acquired its rising competitor, Caliber Systems Inc. The acquisition of Caliber Systems allowed the company to expand its scope of service delivery by offering a wide range of services to customers besides express shipping (Basch 19). The business embarked on an expansion program following the enactment of business friendly laws that made it easier for the business to acquire more aircrafts. For example, the passage of the Public Law 95-163 in 1977 removed some for the legal restrictions on notable airline routes for cargo (Basch 21). In 1994, the firm adopted FedEx as its unofficial name for branding purposes. The rebranding coincided with the launch of fedex.com, a web platform that allowed the cm-any to conduct business with its customers online.
While there are many companies around the world are considered successful, only a few of them can be considered as industry pioneers and true innovators who have transformed not only their industries, but also the business environment in general (Basch 14). Federal Express, commonly known as FedEx is certainly one of them. FedEx is considered the company that helped revolutionized the courier and delivery services industry in the US and by extension around the world. By taking advantage of technology, the company was able to spark a revolution in the manner in which just-in-time delivery services were executed (Afolabi 37). Having been established in 1971 as a fast service delivery company by its visionary founder Fred Smith, the company transformed itself into a worldwide logistics and supply-chain management company in 1973. This transition allowed the company to become a pioneer in the express transportation industry as well as in customer logistics management.
Whether the Company Is Mature, Growing, or Declining and Support Your Statement
FedEx is a mature company in its industry because it is a well-established organization that has witnessed massive success over the years since it was founded in 1971. The company also has a loyal and dedicated customer base that propels it to success. Its profit margins are also quite stable as seen in its ability to make huge revenue annually.
Calculate the Company’s Weighted Average Cost of Capital
WACC = E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate)
1 Weights:
* Weight of equity = E / (E + D)
= 77267.611 / (77267.611 + 26851)
= 0.7421
* weight of debt = D / (E + D) =
26851 / (77267.611 + 26851)
= 0.2579
2 Cost of Equity:
Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market - Risk-Free Rate of Return)
a) The current maturity rate, which is risk free is 1.56000000%.
b) Beta for FedEx is 1.31.
c) (Expected Return of the Market - Risk-Free Rate of Return)
The premium is at 6%; therefore,
The cost of Equity = 1.56000000% + 1.31 * 6%
= 9.42%.
3 Cost of Debt:
Interest expense is at $672 Mil
The company’s total book value of debt (D) is $26851 million
The Cost of Debt = 672 / 26851
= 2.5027%.
4 Multiply by one minus Average Tax Rate:
The tax rates for the last two years are used in the calculation and this is estimated to be about 20.255% for FedEx.
Calculation of the company’s WACC:
Given the above assumptions, the WACC for FedEx is calculated as follows:
WACC

=

E / (E + D)

*

COE

+

D / (E + D)

*

COD

*

(1 - Tax Rate)


=

0.7421

*

9.42%

+

0.2579

*

2.5027%

*

(1 - 20.255%)


=

7.51%









Free Cash Flow Projections for the Company
For the year ending May

2021

2022

2023

2024

2025

2026

Net sales

65 450

69 693

69 217

82 761

86 248

89 840

EBITDA

8 820

8 573

6 737

9 776

11 049

11 675

Operating profit (EBIT)

5 725