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Lockdown Winner

01 July 2020 by jbchevrel

FedEx Corporation (FDX) provides a portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand. Segments include Express, TNT Express, Ground, Freight and Services. Express offers a range of the shipping services for delivery of packages and freight. TNT Express collects, transports and delivers documents, parcels and freight on a day-definite or time-definite basis. Ground provides business and residential money-back guaranteed ground package delivery services. Freight offers less-than-truckload (LTL) freight services. Services segment provides its other companies with sales, marketing, IT and back-office. FDX CDS is not very liquid, thus why historically it has not been a member in any CDX series. Today FDX earnings beat, driven by its ability to contain costs and improve efficiencies despite the massive surge in shipping. The Ground unit revenue was up +20%, Home deliveries accounted for 72% of this, from 56% a year earlier. So today the FDX 5y CDS is tighter -20bp on our end, closing at 85bp on our European close. The stock was up +15% and cash was richer. Before Covid began, FDX had already moved to 7-day service, expanded capacity for larger packages, introduced a new routing software and began pushing more Express packages into the lower-cost Ground network. Those changes helped them benefit from the upsurge in residential packages being sent over the past months, in the context of lockdown in many parts of the world, incl US. Leverage increased +0.8x to 4.5x, as 1/ EBITDA in the quarter was down ~-30% YoY and 2/ FDX issued $3b debt to shore up liquidity. FDX demonstrated is in position to take advantage of heavy e-commerce demand, something that analysts and market participants expect to last. Other than that, the broader US IG CDS market is tighter today. CDX IG is -2. Mainly due to the Pfizer vaccine news.