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FedEx Beats on Q4 Earnings: Transport ETFs in Focus

Sweta Killa

After the closing bell yesterday, the transport bellwether FedEx FDX reported solid fiscal 2017 fourth-quarter earnings result. After two consecutive quarters of earnings miss, the courier company beat our estimates on both the top and the bottom line, and provided an upbeat earnings guidance.

Earnings per share came in at $4.25, far above the Zacks Consensus Estimate of $3.89. In the year-ago quarter, the company had incurred loss of $3.30 per share. Revenues rose 20.8% year over year to $15.73 billion and came ahead of our estimate of $15.56 billion. The robust performance was driven by the growth in online shopping that led to increased deliveries (read: 4 ETF & Stock Charts to Tap Revenue Growth).

The second-largest U.S. package delivery company offered its fiscal 2018 earnings per share guidance in the range of $13.20 to $14.00. The midpoint ($13.60) is well above the Zacks Consensus Estimate of $13.54.

Following the results, FDX shares climbed as much as 2% in aftermarket hours on elevated volume. The stock has been on a tear this year, gaining 14.2% and crushing the Zacks Sector returns of 8.3%.    

Currently, FedEx has a Rank #3 (Hold) with a solid Value and Momentum Style score of B and A, respectively, In addition, it has a solid industry Rank in tthe top 28%, suggesting strengthening industry fundamentals and appreciation for the stock from the current level (see: all the Industrials ETFs here).

ETFs in Focus

The impressive performance of this transport behemoth is expected to benefit transport ETFs – iShares Dow Jones Transportation Average Fund IYT, SPDR S&P Transportation ETF XTN andFirst Trust Nasdaq Transportation ETF FTXR. Though IYT and XTN have an unfavorable Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook, they could get a near-term boost based on robust FedEx reports.

IYT

The ETF tracks the Dow Jones Transportation Average Index, giving investors exposure to the small basket of 20 securities. Out of these, FedEx occupies the top position in the basket with 13.4% of the assets. Within the transportation sector, air freight and logistics takes the top spot with 29.2% share in the basket while railroads (24.5%) and airlines (23.8%) round off the top three. The fund has accumulated nearly $934 million in AUM while it sees good trading volume of around 351,000 shares a day. It charges 44 bps in fees per year from investors and has gained 3.4% in the year-to-date time frame.

XTN

This fund follows the S&P Transportation Select Industry Index and uses almost an equal weight methodology for each security. Holding 45 stocks with AUM of $178.4 million, FedEx accounts for 2.7% share in the basket. The product is heavily exposed to trucking, which accounts for 32.9% of total assets while airlines and air freight & logistics also make up for a chunk 26% and 21%, share, respectively. The fund charges 35 bps in fees per year from investors and trades in a light volume of about 45,000 shares a day. XTN is up 2.9% so far in the year (read: ETFs & Stocks to Gain Height on Busy Air Summer Travel).

FTXR

This fund offers exposure to the 30 most-liquid U.S. transportation securities based on volatility, value and growth by tracking the Nasdaq US Smart Transportation Index. FedEx occupies the eleventh position in the basket with 3.8% share. FTXR has accumulated $3.6 million in its asset base since its debut last September. Average trading volume is meager at under 1,000 shares and expense ratio comes in at 0.60%. FTXL is up 6.7% in the year-to-date timeframe.

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ISHARS-TRAN AVG (IYT): ETF Research Reports
 
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