FedEx Acquisition Should Carry the Company to Stronger Growth

American businesses added 255,000 jobs in July, a bigger-than-expected gain.

Could this mean that the U.S. economy has more momentum than many observers thought just a couple of weeks ago?

If so, FedEx (FDX) is well-positioned to capitalize on it.

The company has been synonymous with express delivery for more than 30 years, a sector that tends to increase markedly with rising business activity. But rather than be satisfied with its status, FedEx has made some smart moves to distance itself further from competitors.

It is a good option for investors interested in the transportation and logistics industry. The company's share price rose nearly 2% in Friday trading. 

In May, FedEx completed the acquisition of TNT Express. The companies received European Union approval for the deal, which was first announced in January 2015.

The $4.8 billion acquisition combines the world's largest air express network and a leader in European transportation. The deal enhances FedEx's European footprint and could reshape the global transportation and logistics industry. 

FedEx rival UPS dropped a nearly $7 billion bid for TNT Express in 2013.

"This acquisition is a significant accomplishment and marks the beginning of a new era, filled with promise for our people, customers and share owners," said Frederick W. Smith, chief executive of FedEx, in a statement when the deal was finalized. 

Global e-commerce is growing at double-digit rates right now, and adding TNT's capabilities to FedEx's existing world-class suite of services will further expand the ability of FedEx to support business connections, particularly by greatly increasing its market penetration in Europe.

TNT is the successor to a company founded in Australia after World War II by entrepreneur Ken Thomas with a single truck. Sixty years later, TNT Express was operating in more than 100 countries worldwide.

FedEx already has a track record of successful integrations in the U.S. and globally. Its acquisition of Kinko's in 2004 added an important new revenue stream to an already strong business, increasing annual estimated revenues to almost $50 billion.

But much of the company's income still derives from those ubiquitous FedEx trucks that have become possibly the most recognizable brand in the transportation of consumer goods. Lower fuel costs of the last two years have really helped the company's bottom line.

What about FedEx's competitors? United Parcel Service is struggling to streamline its operations in the face of an aggressive union.

The U.S. Postal Service has all the problems that come with being a slow-moving government bureaucracy. Deutsche Post's DHL  has had some success, but it lacks the global reach and diversification of FedEx.

With the firm's operating margins on the rise, capital spending for fiscal 2017 is expected to be approximately $5.1 billion, which includes ongoing expansion of the FedEx Ground network and planned aircraft deliveries to support the FedEx Express fleet modernization program.

FedEx is a good buy.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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