FedEx Reports Earnings Today. Here’s What To Expect.

15 Sep 2020

Barron's

FedEx Reports Earnings Today Heres What To Expect

Things are looking better for FedEx stock after analyst upgrades and target-price increases. Investors will see of the gains were warranted when the company reports fiscal-first-quarter numbers.

Things are looking better for FedEx stock lately. The logistics giant is hot after a series of analyst upgrades and target-price increases.

Analysts and investors are more optimistic about the booming e-commerce market and what that might mean for FedEx (ticker: FDX) earnings down the road. Both groups will get a chance to see of the gains were warranted, or if the stock was ahead of itself, when the company reports the first quarter of fiscal 2021 on Tuesday evening.

Here’s what to expect, along with some recent history, when FedEx management releases earnings after the close of trading.

Wall Street expects FedEx to report $2.70 in earnings per share on $17.5 billion in sales. Wall Street earnings estimates are rising, up from about EPS of $1.80 at the end of June.
The increase is positive, however, last year, the company reported EPS of $3.05 on $17 billion in sales. Sales are growing, but EPS has fallen year over year for about 18 months. Even before the pandemic, the industrial economy was slowing down which was pressuring profit margins.
Express profit margins have fallen about 4 percentage points from the fiscal fourth quarters of 2018 to 2020. (FedEx’s fiscal year-end is in May.) Ground shipping profit margins have fallen about 7 percentage points over the same span. Analyst expect year over year growth to resume in the second half of fiscal 2021.
Pricing surcharges implemented by FedEx and United Parcel Service (UPS), as well as a tightening supply/demand balance in the airfreight market, have helped to push up analyst estimates.
“Over the last month it’s become clearer that the nascent pricing tailwind we outlined is real and gaining steam,” wrote Citigroup analyst Christian Wetherbee in a Thursday research report. “Volume continues to surge at [or] near peak levels which is aiding density and absorbing excess capacity.” He raised his FedEx price target to $260 from $235. Wetherbee’s referred to an August report in which he wrote “stars [are] aligning” for FedEx.
FedEx usually provides full year earnings guidance, but management didn’t for 2021 because of the Covid-19 pandemic. That’s in line with what many other industrial and transportation companies have opted to do.
Options markets imply about an 8% to 9% move after earnings are reported. The stock has moved an average of about 10%, up or down, after the past four quarters reported.
Cowen analyst Helane Becker expects a solid earnings report but warns investors that management might try to tamp down expectations. “Admittedly, FedEx valuation is currently near peak levels, but the market is attempting to digest the permanent shift to e-commerce volumes,” writes Becker in a Friday research report. There is further upside to [fiscal 2021] estimates as volumes could continue to surge in the near-term...we expect management to talk down growth in e-commerce as they look to lower expectations.” Still, she is positive on the stock rating shares the equivalent of Buy. Her price target is $267 a share.

FedEx stock has returned about 79% over the past three months. UPS shares have 59% over the same span. The comparable numbers for the S&P 500 and Dow Jones Industrial Average are 12% and 10%, respectively. Year to date, FedEx stock has gained about 55%.

Barron’s recently wrote positively about both FedEx and UPS stock. Since the FedEx article appeared in July 2019, shares are up about 41%, better than the comparable return of the overall market. Since the UPS article appeared in May 2019, shares are up about 59%, also better than the overall market.

Write to Al Root at allen.root@dowjones.com