Consulting Project Fedex

The following strategic valuation of FedEx Corp. is based on the overall economy, industry, and competitor conditions. In formulating our strategy, we used a strategic valuation model to prepare a detailed free cash flow with a five-year projection and multiple upside and downside scenarios. We estimated weighted average cost of capital and used relevant value drivers to estimate the impact that our strategy will have on the company's value as well as shareholder's wealth maximization. Based on the data we generated and the detailed analysis and evaluations, we found FedEx to be not only profitable, but possessing unrivaled growth potentials as well as the ability to continue to generate positive cash flows and enhancing shareholder's wealth. These are being supported by exhibits attached with this report.

Strategic Overview:

FedEx Corporation invested heavily in innovation and capital over the years, but its main driver of expansion and growth has traditionally been through acquisitions. Previously, the company kept the name of its acquisitions intact but, starting in 2005, it began to leverage the power of its brand and renamed all of its various divisions under the FedEx banner. Also at the core of the company's business model is its employment structure where all drivers are classified as contract workers as opposed to full-time employees. FedEx is currently a $63.1 billion company and posted revenues in excess of $39.3 billion in fiscal 2011.

Applying Porter's five forces model to the industry, and considering risk of new entry by potential competitors, we ascertain that the barriers to entry are very high. One of the reasons that there is a high entry barrier is the high fixed cost associated with establishing the international transportation network. We also ascertained the extent of rivalry between established firms and found out that established players in shipping service industry compete rigorously for a market share, as demonstrated by the constant battle between FedEx and UPS, the company who responses first to the constantly changing environment wins. On bargaining power of buyers, power of large buyers in shipping service industry is high. However, associated cost with switching from one shipping service to another is very low. With bargaining power of suppliers, the supplier power within this industry is fairly low, due largely to the fact that Large shipping service provider can affect prices of supplies, like packaging materials. This is because they buy in large quantities and can turn to different suppliers easily. Finally, with threat of substitute products, we found there are not many substitutes to shipping. This may be attributable to modern system of doing business online. Shipping services are very much similar to a commodity, in that it is not easily replaced with another service or even a similar service. (See Exhibit 1)

Basic Financial Analysis:

Based on data generated and financial analysis computed, FedEx reported revenues of $39.3 billion for fiscal 2011 (ending 5/31/2011), up 13.16% from $34.7 billion in FY10. Additionally, in FY11, gross profit grew 19% to $2.378 billion while net income grew 22.643% to $1.452 billion. FedEx appears to have gained market share as smaller, weaker competitors were forced to cease Operations. Over the past five years, FedEx has reduced its debt load by $961 million while increasing shareowner equity by $2.56 billion during