Sultan of shipping, FedEx Corporation (FDX) will step into the earnings limelight after the close of trading Wednesday. The company was expected to have tough third-quarter year-over-year comparisons due to ultra low fuel prices, but oil continued lower instead. As such, FedEx stock has an excellent chance of extending its recent win streak following a solid earnings report.
Wall Street expects FedEx earnings to rise to $2.35 per share in the third quarter from $2.03 per share last year. Revenue, meanwhile, is seen adding 6% year-over-year to arrive at $12.4 billion.
FedEx noted during its second-quarter report that a rebound in oil prices would be a negative to Q3 results, but fuel costs continued to plunge during the quarter, leading some analysts to whisper that earnings could come in higher than expected; specifically, $2.36 per share, a penny better than the consensus.
Pulling back for a broader sentiment look, we find a growing bullish bias in the brokerage community. According to Thomson/First Call, FedEx stock has attracted 15 buy ratings, 12 holds and no sells. Additionally, the 12-month consensus price target of $174 projects a healthy gain of about 21% over the next year for FedEx stock.
The real optimism levied against FDX can be seen in the options pits. For the front two months of options, FedEx stock sports a put/call open interest ratio of 0.64, with calls nearly doubling puts in terms of open interest. Furthermore, this ratio drops to 0.57 for the March series, hinting that options traders are betting a positive results from Wednesday’s report.
Click to Enlarge Overall, March option implieds are pricing in a potential post earnings move of about 5% for FedEx stock. This places the upper bound at $151.26, while the lower bound lies at $136.74. By breaking above short-term resistance at $150, a post-earnings rally could bring technical traders to the table. A breach of support near $135, however, could mark the start of another downleg for FDX stock.
2 Trades for FedEx Stock
Call Spread: While FedEx has struggled during the past three months, the shares are in the process of staging a comeback. Furthermore, with fuel prices still struggling to make any meaningful headway, a strong third-quarter report should go a long way toward bolstering FDX over the short term.
As such, traders looking to bet bullish on FedEx stock ahead of earnings may want to consider an April $145/$150 bull call spread. At last check, this spread was offered at $2.05, or $205 per pair of contracts. Breakeven lies at $147.05, while a maximum profit of $2.95, or $295 per pair of contracts, is possible if FedEx stock closes at or above $150 when April options expire.
Put Sell: That said, there are concerns that guidance and a rebound in oil prices could outway third-quarter performance. Let’s face it, guidance hasn’t been all that great this quarter. Traders looking to exercise a bit of caution with FedEx stock might want to consider a March $135 put sell. At last check, this put was bid at 55 cents, or $55 per contract.
On the upside, you keep the premium received as long as FedEx stock closes above $135 when March options expire at the end of this week. On the downside, should FDX trade below the sold strike ahead of expiration, you could be assigned 100 shares for each sold put at a cost of $135 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
