Bull of the Day: FedEx Corporation (FDX)
FedEx Corporation (FDX) is a Zacks #1 (Strong Buy) that is a leader in global express delivery services. The company proves a broad portfolio of transportation, e-commerce and business services that delivers to more than 220 countries and territories.
The stock really got going late last year, more than tripling from its March lows to the end of 2021. The recent pullback provides investors with a technical entry point after the stock saw support at a Fibonacci retracement level. Additionally, at after UPS earnings last week, the fundamentals in the industry look strong, making an argument for FDX to grind higher into earnings on March 18th.
About the Company
FedEx was founded in 1971 and is headquartered in Memphis, Tennessee. The company employs 245,000 employees, has 30,000 service vehicles and has 98,000 drop off locations.
FDX has a market cap of about $67 Billion and has Zacks Style Scores of “A” in Growth and “B” in Value. The Forward PE is just 15, which is makes the case for valuation in relative terms.
The company is currently reporting, primarily through the FedEx Express (including TNT Express acquired in 2016), FedEx Ground and FedEx Freight segments. These segments contributed 51.3%, 32.8% and 10.3% respectively to the company’s total revenues in fiscal 2020.
FedEx also pays a dividend of 1.02%.
Q2 Earnings
FDX reported in late December, seeing an EPS surprise beat to the upside of 23%. The company also beat on revenue and affirmed FY21 capex. It was the third straight EPS beat for FedEx after a string of messy quarters in the previous years.
The company said that operating results increased due to volume growth in the FedEx International Priority and U.S. domestic residential package services as well as pricing initiatives across all transportation segments.Those positive factors were offset by increased costs due to expanded services and COVID-19 related costs, but Non-GAAP op margins came in at 7.4% vs the 3.9% last year.
The company expects earnings growth in the second half of the year, but investors took the opportunity to sell into the good news after the monster stock run.
Estimates
Over the last 60 days, estimates have shot higher. For the current quarter, we have seen estimates raised by 17%, from $2.74 to $3.25. For the current year, we have seen a 12% move higher in that same time frame.
The trend higher is bullish and that idea has been reenforced by recent earnings out from the company’s biggest competitor.
UPS Earnings
Last week, UPS reported an EPS beat on the top line and a 26% surprise to the upside. The company saw double digit year over year growth in domestic and international revenues. For the upcoming year, the company expects higher margins and a hike to its dividend.
The numbers signal that FedEx will enjoy similar success when it announces earnings in March. With the recent move higher in FDX this past week, it looks like investors are already jumping in.
The Technicals
The stock moved below $100 in March, but rose throughout the rest of the year, making a high of $305.66 in December. Since then, the company reported earnings and profit takers have come in, taking the stock below $240.
That area marked the halfway back, or 50% Fibonacci retracement level form the August breakout point to the $305 highs. The stock has now bounced and is above the 21-day moving average at $249. If it can take back the 50-day, currently at $266, the bulls will have fresh powder higher into the EPS report in March.
Bottom Line
The run last year happened only after the realization that the company would thrive during the pandemic. The recent sell off was due to profit taking and the question of if the success can continue. The UPS earnings gives us a clear signal that FDX will continue to thrive in the current environment.
Expect the stock to grind higher into earnings, much like it did during the August and September months. If the company can prove itself once again, all-time highs should come before the end of the quarter.
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