FedEx Corporation (NYSE:FDX) will step into the earnings confessional after the close of trading tomorrow afternoon to release its fiscal first-quarter earnings report. FedEx stock has struggled to find headway this year, gaining a mere 6.5% in 2016.
More recently, the stock has pulled back below former support at $160 due to uncertainty ahead of the Fed’s decision on interest rate, but the holiday shipping season is looming large, and guidance could set the shares back on track.
Diving into the numbers, Wall Street is forecasting a profit of $2.78 per share from FedEx — a figure that is up 14.9% from the same quarter last year. Revenue, meanwhile, is seen rising 19% year-over-year to $14.61 billion.
Expectations may be a bit higher for FedEx heading into tomorrow’s report, however. According to data from EarningsWhispers.com, the first-quarter whisper number rests at $2.82 per share, four cents ahead of the consensus.
Pulling back for a broader look at sentiment on FDX stock, we find a mixed backdrop. On one hand, analysts remain quite bullish on FedEx stock. According to Zacks data, FDX has attracted 10 buy ratings and four holds, with no sells to be found.
That said, the current 12-month consensus price target of $181.78 represents a subdued premium of only about 14.4% to FDX’s current perch, leaving room for potential price-target increases.
Click to Enlarge Turning to the options pits, speculative traders appear torn on FedEx stock’s prospects. For the front two months of options, FDX sports an exceptionally bearish put/call open interest ratio of 1.93, with puts nearly doubling calls for options set to expire by the end of October. That said, this ratio plunges to 0.75 for the weekly September 23 series, indicating that while options traders are anticipating a post-earnings rally, they don’t believe that rally will be sustainable.
Overall, September 23 series option implieds are pricing in a potential post earnings move of about 3.7% for FedEx stock. This places the upper bound at $163.91, while the lower bound lies at $152.09.
A rally back above $160 could be an indication that FDX’s short-term decline is finally at an end, while a breach of support at $155 could confirm the downtrend and signal additional losses for FedEx stock before the shares finally turn things around.
2 Trades for FedEx Stock
Call Spread: FedEx stock doesn’t have the best of bullish setups heading into tomorrow’s report. The shares are near oversold territory, and sentiment is quite bullish from the brokerage community. That said, it is hard to bet against FDX stock heading into the holiday shipping season. As long as FedEx matches expectations and doesn’t guide lower, the shares should break out of their current funk and head higher.
As such, traders looking to bet bullish on FedEx stock ahead of earnings may want to consider an October $160/$165 bull call spread. At last check, this spread was offered at $2.07, or $207 per pair of contracts. Breakeven lies at $162.07, while a maximum profit of $2.93, or $293 per pair of contracts, is possible if FedEx stock closes at or above $165 when October options expire.
Puts Sell: That said, there are concerns that the shares could remain trapped below $160 for the intermediate term, or that the Federal Reserve could throw a wrench into the mix with their monetary policy decision. As such, traders with a neutral-to-bullish outlook on FedEx Stock might want to consider a weekly Sept 23 $150 put sell. At last check, the September $150 put was bid at 88 cents, or $88 per contract.
On the upside, you keep the premium received as long as FedEx stock closes above $150 when September 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 $150 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
