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Is a Beat in the Cards for FedEx (FDX) Stock in Q4 Earnings?

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FedEx Corporation (FDX - Free Report) is set to release fourth-quarter fiscal 2018 results, after the closing bell on Jun 19.

In the third quarter of fiscal 2018, earnings of $3.72 per share comfortably surpassed the Zacks Consensus Estimate of $3.08. The bottom-line figure also surged 58.3% on a year-over-year basis. Results were aided by higher revenues.

We expect this S&P 500 company to outperform earnings estimates in the quarter-to-be reported as well. Strong e-commerce growth is likely to aid results. Notably, the Zacks Consensus Estimate for fiscal fourth-quarter earnings moved north 3.5% over the last 30 days, reflecting investor optimism surrounding the stock.

Also, FedEx’s price performance in the last three months has been impressive. While the stock has gained 6.3%, the Zacks S&P 500 composite increased 1%.

Three-Month Price Comparison

 

Given this backdrop, let’s delve deeper to unearth the factors that are likely to influence the company’s fourth-quarter results:

We expect the company to deliver solid results in the fiscal fourth quarter, courtesy of e-commerce growth. Earlier in 2018, FedEx acquired P2P to boosts its e-commerce portfolio.  

In fact, growth is expected across all major divisions of the company. The Zacks Consensus Estimate for revenues at the FedEx Express (including TNT Express) division stands at $10,056 million, much higher than the year-ago figure of $7,180 million. For the Ground and the Freight divisions, the consensus estimate for revenues is pegged at a respective $5,009 million and $1,859 million above the year-ago figures of $4,678 million and $1,696 million.

Volume expansion and higher base rates are likely to boost results at the Ground and the Express units. The freight unit should benefit from average daily less-than-truckload shipment growth. For fourth-quarter fiscal 2018, the company envisions adjusted operating margin (minus TNT Express integration expenses) at the FedEx Express segment between 9.9% and 10.4%. At FedEx’s Ground and Freight segments, the metric (on a reported basis) is estimated between 17-17.5% and 8-9%, respectively.

Lower tax rates following the introduction of the Tax Cuts and Jobs Act late last year, are also expected to boost the bottom line in the soon-to-be-reported quarter. However, headwinds like high costs might hurt the bottom line in the same period. We expect the company to provide a detailed guidance for fiscal 2019 on the conference call.

What Does the Zacks Model Unveil?

Our quantitative model too shows that FedEx is likely to beat earnings in the fiscal fourth quarter because it has the perfect combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings surprise.

Zacks ESP: FedEx has an Earnings ESP of +0.32% as the Most Accurate estimate exceeded the Zacks Consensus Estimate of $5.71 by 2 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FedEx carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

The Zacks Consensus Estimate for fiscal fourth-quarter earnings moved north 34.4% on a year-over-year basis, mainly owing to e-commerce growth. The same for sales is projected at $17.19 billion, up 9.3% year over year.

Other Stocks to Consider

Investors interested in the broader Transportation sector may also consider United Continental Holdings, Inc. (UAL - Free Report) , Union Pacific Corporation (UNP - Free Report) and Ryder System, Inc. (R - Free Report) , since our model shows that all these stocks possess the right combination of elements to post an earnings beat in their next releases.

United Continental has an Earnings ESP of +1.21% and a Zacks Rank #3. The company is expected to report first-quarter 2018 results on Jul 17.

Union Pacific has an Earnings ESP of +0.80% and a Zacks Rank #3. The company is scheduled to report first-quarter 2018 results on Jul 19.

Ryder System has an Earnings ESP of +0.63% and a Zacks Rank #3. The company is scheduled to report first-quarter 2018 results on Jul 25.

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