# How does Fedex declare Valuation work

Stock valuation involves calculating theoretical values of companies and their stock to predict: future market prices, potential market prices and the profit therefore.  Stock valuation is critical when it comes to investing, because it tells the future cash flow of a company and the possible value of stock in the next financial year.

P/E Ratio Based Model

Price to Earning ratio is  the measure of the share price against  the annual net income earned by the firm per shareThe P/E model Uses net income for the most recent year (12 month period), divided by the weighted average number of common shares in issue during the period. It is the easiest way to calculate the stock value. We will use Earning Per Share(EPS):

 2014 2015 EPS 7.4 8.12 P/E ratio 22.88 22.88 Projected stock prices 169.31 185.79

Figure 1.1(stock analysis on net)

figure 1.1, illustrates the projected stock prices by FedEx’s common stock. To project the stock prices, one need to multiply the EPS and the P/E ratio which we have chosen to be constant. According to the calculations we find that FedEx is currently overvalued, the current share price being 169.41 which is higher than the estimated value in 2014(169.31).

Earning Multiplier Model

The value of any investment is the present value of future returns. It is estimated by finding out how much an investor is willing to pay for a share the next 12 months. the current shares atFedEx is 283,246,379. So the net present value of future dividends is the number of shares multiplied by the expected cost per share which is 8.12The expected earnings of FedEx is

283,246,379*8.12= 2299960597.48

This value shows that FedEx will make profit next year and its investors will benefit although not as much as they did in 2013 when the shares were over 3 million and the expected cost was much higher.

Price earning to growth(PEV) ratio

It take three factors into account: the earnings, price and the earnings growth rate.it is calculated by taking the forward P/E divided by the expected/ historical earnings growth rate

The PEV of FedEx is therefore:

22.88/9.68=2.364%

The price earning to growth ratio is 2.364% which shows that FedEx is a better purchase because it has a low PEV ratio which means that one can purchase its future earnings growth for a lower price. Hwoever it shows that the market value of shares will drop significantly

Dividend Valuation Model

It is used to value stock based on the net present value of future dividends. The formulae used is

where p= the current stock price, g= constant growth rate, r= constant cost of equity capital, D= value of next year’s dividends

According to what we know about FedEx stock:

=6.68368/0.8145=\$8.21

So the current stock price should be \$8.21 which shows that the shares are not returning the required returns and hence even the company’s profit have declined the intrinsic value today should be \$187.84 and since our intrinsic value is greater than the market value, it becomes a buy recommendation for this particular model.

Recommendations:

Our recommendations for the FedEx company has been based on the economy, the company’s growth rate, the courier delivery industry and the four valuation models used. The economy is showing great influx and is expected to continue that way for several years, the company’s growth rate is steady and commendable and the courier delivery service industry has show tremendous growth and increase in the past decade. The  four valuation models used show that fedEX is undervalued. The dividend valuation model shows that the shares at FedEx are gaining value from the buying time to the mature stock. PEV shows that buying stock at FedEx is cheaper while the P/E ratio model shows that FedEx is under valued. We recommend buying shares at the current market price of \$169.31 and expecting a substantial growth rate.