With a 12.14 forward price-to-earnings ratio, the company trades at a lower valuation than rival UPS (UPS), which trades at a comparatively expensive 15.97 times earnings.
3) Ackman’s history with transport companies: Ackman is bullish on the transport industry and has prior success investing in it. In Fall 2011, Ackman purchased a $1 billion stake in Canadian Pacific Railway (CP) and doubled his money by 2013. Consequently, his fund sold most of the stake last month because the position took up over 30 percent of the portfolio.
As the transport industry’s best of breed, FedEx could be Ackman’s move to regain exposure and influence in the industry.
Why the FedEx Assumption is Premature
1) Ackman’s description is too vague: Ackman’s aforementioned description of the soon-to-be-named company can apply to a vast number of large-cap companies. Among others, the oil, automobile, credit card, and telecommunication industries all have extremely high barriers to entry. Thus, it’s entirely possible that Ackman has his sights set on a different company in a different industry.
2) Investing in FedEx would give Ackman little power: A $1 billion investment in FedEx would only give Ackman a 3.2 percent stake in the company, based on FedEx’s current market cap. Ackman prefers to make investments that allow him to influence strategy and restructuring efforts, and a 3.2 percent simply isn’t enough for Ackman to actively seek appreciation on his investment.
FedEx is currently in the midst of enormous restructuring efforts, so Ackman would have to fight a proxy battle to convince management to change its course of action. With only a 3.2 percent stake, he may not have the leverage to accomplish such a feat.
Shares of FedEx traded with high volatility on Wednesday, reaching a high of $106.47, and then selling off to $102.89 before the closing bell. Shares are up 4.5 percent for the week amid the rumors.
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