Tuesday, 31 May 2016
FedEx: TNT Express To Strengthen Global Presence
FedEx’s acquisition of TNT will bring the combined company’s market share from 22% to 24%.
TNT also gives FedEx over $7 billion in revenue in addition to cost-reducing synergies.
FedEx’s undervaluation and double-digit expected EPS growth is likely to drive the stock to outperform.
FedEx (NYSE:FDX) has a positive catalyst with its acquisition of TNT Express (OTCPK:TNTEY) (OTCPK:TNTEF). TNT will give FedEx a new source of revenue and cost-reducing synergies. It will allow FedEx to grow in Europe, South America, Asia, the Middle East and Australia. The acquisition makes FedEx more attractive as an investment. I like the valuation and growth prospects.
FedEx got a good deal with the TNT Express acquisition in my opinion. FedEx paid $4.9 billion for the company that generates over $7 billion in revenue per year. That $7 billion in additional revenue represents about 13% of FedEx'sexpected FY17 revenue of $53 billion.
FedEx is buying TNT for a price to sales ratio of 0.64, which is lower than FedEx's price to sales ratio of 0.89. This is also lower than United Parcel Service's (NYSE:UPS) price to sales of 1.5. So, I think FedEx is getting TNT at an attractive valuation.
FedEx will allow TNT to operate more efficiently. TNT currently has high operating expenses (94% of 2015 revenue), which led the company to have negative EPS over the past few years. However, I think the synergies from the acquisition will allow TNT to operate more profitably in the future. TNT and FedEx will benefit from operational efficiencies through improved pickup/delivery route optimization as a result of the acquisition. For example, overlapping shipping hubs and route coverage can be minimized and eliminated over time.