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Buy Soaring FedEx Stock Before Earnings on E-Commerce Boom?

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FedEx (FDX - Free Report) shares have skyrocketed 135% in the last six months and 65% since it topped Q4 FY20 estimates on June 30, which blows away UPS and Amazon. Investors have jumped on FDX stock as the shipping giant showcases that its push into e-commerce is paying off.

Shipping Shift?

FedEx stock had been tumbling over the last several years, as its longer-term earnings outlook fell. FDX then surprised some on Wall Street when it essentially cut ties with Amazon (AMZN - Free Report) in August 2019. FDX likely didn’t want to be in business with a company that has its own shipping and logistics aspirations. And FedEx executives pointed out that Amazon represented only a small proportion of revenue.

Instead, FedEx plans to attract Amazon’s direct rivals. This includes the likes of Walmart (WMT - Free Report) and others that have gone all in on e-commerce. The company is also improving its FedEx Express hub automation and modernizing its Express air fleet.

The long-term plan is to attract more e-commerce and business-to-consumer clients, while remaining a business-to-business heavy operation. FDX aims to better compete against its core competitors United Parcel Service (UPS - Free Report) , DHL, the US Postal Service, and Amazon. And it’s worth noting that the broader e-commerce market has miles of runway left, as it accounted for only 16% of total U.S. retail revenue in the second quarter despite perfect conditions to outperform.

 

 

 

 

 

 

 

 

 

 

 

 

 

Looking Ahead…

FedEx crushed our bottom line estimate last quarter by 80%, as the coronavirus boosted its business to consumer unit. This helped offset some of the economic setbacks that hampered its higher-margin Express air-shipment unit that focuses on B2B, which Wall Street clearly thinks will bounce back as the economy returns to something closer to normal.

Investors are also pleased that FedEx is rolling out extra fees during the high-traffic holiday season to offset costs and manage volume. Looking ahead, our Zacks estimates call for FedEx’s Q1 sales to pop 2.4% to reach $17.46 billion, with its adjusted earnings expected to slip 17% to $2.54 a share.

Both of these estimates mark big improvements from last quarter. On top of that, its FY21 sales are projected to climb 2.8% to help lift its bottom line by 11%, with stronger growth expected in FY22.

Bottom Line

FedEx is currently a Zacks #3 (Hold) that’s seen its consensus earnings outlook improve recently. FDX also sports “B” grades for Value, Growth, and Momentum in our Style Scores system. Plus FDX’s 1.13% dividend yield tops the 10-year U.S. treasury and it is part of a highly ranked Zacks industry.

The nearby chart also shows that despite FDX’s strong run over the last six months, it rests 13% off its early 2018 highs. The stock touched a new 52-week record on Friday, even as the tech selloff continued through early afternoon trading, which means Wall Street might be expecting big things from its Q1 FY21 financial results that are due out on Tuesday, September 15.

Longer-term investors might want to consider buying FedEx stock. But it is likely best to wait and see how its guidance comes in, and it could face a near-term pullback on post-earnings profit-taking.    

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