FedEx Teams Up With Microsoft to Fight Amazon. That’s Good for FedEx Stock.

Article written by Al Root

Microsoft and FedEx announced an agreement to “transform e-commerce.” FedEx hopes to get a leg up in the delivery battle with Amazon.

Photograph by Justin Sullivan/Getty Images

Software behemoth Microsoft and logistics giant FedEx are joining forces to “transform e-commerce.” That sounds like a big job. To make it happen the pair are launching cloud-based inventory and supply chain management solutions. That’s good news for FedEx investors who have been living through an e-commerce “fog of war.”
Microsoft (ticker: MSFT), with the partnership, gets a new cloud customer. FedEx (FDX) hopes to get a leg up on (AMZN) in the e-commerce delivery wars.

FedEx has always used technology to help customers track packages. The tools enabled by Microsoft are intended to take them to the next level. “FedEx has been reimagining the supply chain since our first day of operation,” said Fedex CEO Frederick Smith in the company’s news release. “Together with Microsoft, we will combine the immense power of technology with the vast scale of our infrastructure to help revolutionize commerce and create a network for what’s next for our customers.”
The first solution launched is called FedEx Surround. It “allows any business to enhance visibility into its supply chain by leveraging data to provide near-real-time analytics into shipment tracking,” reads the release. That’s a mouthful. FedEx believes it gives shippers better data on where a package is as it makes its way from producer to consumer.
FedEx wasn’t immediately available to offer more detail about FedEx Surround.
The delivery stakes have been rising as more companies are entering the last mile delivery fray. Amazon and Walmart (WMT) are each developing their own delivery capabilities as e-commerce volumes grow.
The added capacity is needed as online shopping explodes, but investors aren’t sure what new entrants will do to the long term growth and profit margins of United Parcel Service (UPS) as well as FedEx. Wall Street has even suggested Amazon buy FedEx although that seems unlikely . But as the delivery wars have heated up, FedEx valuation multiple has cooled down.
FedEx shares trade for about 11 times estimated calendar 2021 earnings, a discount to the market and to its own trading history. What’s more, shares are down about 32% over the past year, trailing behind comparable returns of the S&P 500 and Dow Jones Industrial Average.

The investor concern is evident in an another way: today’s price surge. FedEx shares are up 7.4% in early trading Monday, better than the 2.4% gain of the S&P 500. Investors appear happy FedEx has new solutions to win e-commerce shipping volumes.
FedEx, for its part, is showing investors it won’t go down to Amazon without a fight. The company is getting ready to deliver packages business-to-consumer packages as fast as shoppers want them.
Barron’s wrote positively about FedEx stock in July 2019, believing the worse of M&A integration and operational issues were behind the company. That hasn’t been a great call. Shares are down about 30% since then. The Dow Jones Industrial Average and S&P 500 have respectively fallen 10% and 1% over the same span.

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