Dueling Fools
FDX-cess?
March 31, 1999

FDX Bear's Rebuttal
by Rick Munarriz ([email protected])

I wonder if FDX can deliver reality to my buddy, Paul. He points out that less than 25% of all e-tail orders are being shipped via FDX, but I'm not sure he understands why the piece of the pie is, and will continue to be, so small.

Let's apply this to reality. Let's say I want to buy Rule Breakers, Rule Makers at a juicy 30% discount from Amazon.com. If I want overnight delivery it's an additional $10.95 on the $17.50 book. Convenient? Sure. But paying 14% over the list price, and having to wait anyway, is not what this online revolution is all about.

If you need something immediately, you grab the keys and brick and mortar it. If you can wait, you will. Federal Express is left with that ever-shrinking segment living in a logic vacuum to cater to.

Besides, the real growth in online commerce may have little to do with official virtual storefronts. As we speak there are 1.8 million hobbyist auctions taking place on eBay <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EBAY)") else Response.Write("(Nasdaq: EBAY)") end if %>. With rare exception, the real beneficiary will be the U.S. Postal Service to complete the transactions. That boom is bound to keep shipping rates steady for years to come. Ouchies to FDX.

But the misplaced optimism is strictly in terms of online commerce. Federal Express has a solid reputation in the business document delivery realm that I won't contest. However, the number of businesses remains constant. There is no real growth there and that is not the reason why shares of FDX have doubled over the past year. That was a spurt that will take company fundamentals another 3-4 years to catch up with.

My worthy Foolish counterpart makes a sound case on valuation, but he forgets the most important metric of all -- industry group. Airborne Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABF)") else Response.Write("(NYSE: ABF)") end if %> is as close a match as one can get to Federal Express. They both serve more than 200 international markets with airfreight of letters and small packages. However, while FDX is trading at 20 times next year's earnings, Airborne's multiple is just shy of ten. Why pay twice as much for the emperor's new coattails?

Paul closes by saying that FDX "should continue to deliver handsome returns." If I may add a suggestion, insure that delivery.

The one thing I do agree with Paul is that buying FDX may be a "no brainer" decision. If you aren't going to think about the competition that share in the same growth potential but come with discounted price tags, buy FDX. No brainer! If you aren't going to think about the real role that FDX will pay in online commerce, buy FDX. No brainer! Let's just hope your straw hands don't get singed on your way to the Wizard.

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