Last week, I was pleasantly surprised to learn of the arrest of an SMCI board member and two others for smuggling sanctioned Nvidia-powered servers into China. SMCI ended the day down 33%, and collectively, there was shock and disbelief among investors. I was not shocked cause I had provided proof of sanctioned GPUs and servers available in China on this blog multiple times since the end of 2024. However, I also knew that was not enough to indict anyone, as law enforcement needs proof of how they made it to China and who was responsible. I stopped talking about all of this in the early part of 2025, as it was nothing but a waste of time for me, and it was up to law enforcement to figure it out.

SMCI hit my radar in February 2024 when I started to hear the constant allegations of fraud at NVDA. I decided to run the Beneish M-Score on NVDA and a slew of other AI players, including SMCI. NVDA was flagged as a probable manipulator of earnings, and SMCI was flagged as a likely manipulator of earnings. NVDA passed my initial check as its high sales growth could have skewed the M-Score. However, SMCI piqued my interest as its Cash from Operations was below Net Income. I decided to dig deeper. That led to my article dated May 25, 2024, on SMCI, highlighting accounting issues plus a whole lot of shady stuff that were highlighted by Hindenburg Research in August 2024.

By the middle of November 2024, E&Y, SMCI’s auditor, had resigned, and the DOJ had started an investigation. For me, the trade was done. SMCI had fallen 80% by November 2024 since my warning in May 2024.

Now, this blog aims to highlight issues at companies to help investors protect capital and provide actionable bullish ideas to grow wealth over the medium to long term. While people may do whatever they wish with the information provided here, I strongly request readers not to use leverage or play with options. For instance, some of the long ideas of 2025, like WPM, tripled, RDDT went on to more than double, TMDX up 147% till a tactical sell call was issued, and there were others. The interesting one was UBER at the start of 2025, as seven days after I published, Pershing Square announced a $2 Billion stake in UBER.

That said, one might wonder, are there other companies with accounting issues I highlighted in this blog? While something like SMCI doesn’t come across as often, there are others.

As I said, there is much more, and you can look around the blog to see the blend of forensic accounting, fundamentals, quirky valuation tricks, and marketing insights in my posts. However, I don’t write novellas or tomes all the time. If a thesis is not short, simple, and actionable, it needs a relook. That said, let’s take a look at FedEx (FDX).

Whenever a new CEO comes in and announces a restructuring program, I get skeptical. Seen many of those done for short-term EPS boost, eventually the company crashes and burns. So, I ask some questions.

FedEx clears all these questions and is worth looking at, and I will highlight what FedEx has been up to. However, before diving into the 10Ks, 10Qs, and earnings call transcripts, I want to know one more thing. Is the company available at a discount to its intrinsic value? Now, I will show how any investor can use a simple trick to figure that out without getting into full-blown analysis mode. So, here goes.

Divide the TTM (Trailing Twelve Months) Cash from Operations by the current 10-Year Yield and compare it to the Market Capitalization.

Awesome! Now, let’s get a little more stringent. Instead of using Cash from Operations, let’s use TTM Free Cash Flow. If there are out-of-the-ordinary CAPEX numbers, we may need to normalize them; however, for FedEx, we can use the TTM FCF.

Ballpark, the discount to intrinsic value, not accounting for any growth projections and/or improvements, is between 17.8% and 56.1%. There is a logic behind doing this exercise.

Warren Buffett used to do this with what he termed Owner’s Earnings. That would be in between the two numbers we got above. Hence, we are in the ballpark. Even then, we know we are getting FedEx at a discount without baking in any improvements to the debt-to-equity ratio and ROE. Working these improvements in and performing a Discounted Cash Flow valuation would result in a larger discount.

Buying a business at a discount looks great on paper; however, are there drivers, or put another way, a rationale that would make the markets assign a higher valuation to the business in the future? So, what has FedEx been doing to make me believe that would be the case?

FedEx has been transforming itself since 2023 with a focus on increasing efficiency, accelerating digital innovation, and improving profitability by focusing on high-value B2B volumes, increasing revenue per package, enhancing technology in last-mile delivery, and using autonomous technology for transportation.

All this sounds great; however, let’s dive into the numbers and judge the progress made in recent quarters.

While the quarter ended August 2025 was not stellar, the YoY revenue growth was an early indicator that something good was brewing at FDX. The stock steadily climbed, and the quarter ended November 2025 was better all around compared to November 2024. FDX even showed stellar sequential growth numbers. What was heartening was that revenue growth outpaced the increase in cost of sales.

After the recent quarter’s numbers came out - quarter ended February 2026 - the stock was up over 10% in after-hours trading as investors celebrated an all-around beat. The problem that got overlooked was that the increase in cost of sales outpaced revenue growth, which is reflected in the deteriorating margins. The margins for February 2026 were less than the margins for the quarter ended February 2025 and deteriorated from the November 2025 quarter.

Also, as FDX’s revenues are impacted by seasonality, while it is better to look at YoY numbers, the sequential fall in revenue growth in the recent quarter makes one wonder if there is a drag somewhere in the recovery story. Yes, there is. The Freight business was a drag due to 5% YoY fall in revenue. This was due to continued weak LTL industry demand trends, partially offset by higher yields. Operating margins for the Freight business were just 0.4% due to higher separation-related costs.

The good thing about FDX is that it includes the transformation costs in the operating expenses rather than kitchen-sinking them, if and when required, below the line to manage quarterly net income to meet street estimates. As these costs are part of a multi-year transformation, this is the correct way to account for them. FDX does do a GAAP versus non-GAAP reconciliation to highlight the impact of its transformation costs on Operating Income. Again, this is the correct way to give investors a clear picture of the impact and leave the judgment to investors whether they want to project earnings for 2027 as these costs roll off.

The message here is clear: Federal Express Corporation (FEC), the consolidated entity containing FedEx Express, FedEx Ground, and FedEx Services, is carrying the show and showing marked improvements. In the quarter ended February 2026, FEC revenue was up 10% and adjusted operating income was up 18% YoY, marking the sixth consecutive quarter of FEC margin expansion, driven by revenue quality, profitable growth, and impressive cost management.

One key item to look at when projecting possible future improvements in margins and ROE is whether investments are being prioritized and whether the CAPEX is helping increase efficiency and reduce the cost of service.

Even with the issues highlighted during the recent quarter, we can infer that FedEx is certainly getting more efficient, and if not for the general issues around the freight industry, FedEx would have been roaring. That said, let’s look at the recent CAPEX numbers.

FedEx is definitely managing its CAPEX well and is executing with less. This bodes well for the future.

The planned breakup of FedEx into two publicly traded companies on June 1, 2026, raises an interesting question: Accumulate now or wait until June 1?

I am interested in the Express/Ground/Services business (FEC), which will trade under the FDX ticker, not the Freight business, at this time. Accumulating now could expose one to volatility as investors exercise their preference of either holding both or selling one to add to the other. I leave that decision to you.

I expect FEC to achieve 20%+ ROE and grow at least 8% to 10% for the next 5 years. The Freight business will turn around in a year or so as the industry consolidates and pricing normalizes.

The combined business is available at a decent discount, as highlighted above. If one is willing to hold both the new companies, I would accumulate slowly, hold both for at least 10 years, and evaluate the holdings periodically. This could turn out to be a great value investment.

Until next time, have fun!!!