FedEx Corporation (NYSE:FDX) stock initially jumped 3.6% in Tuesday’s after-hours trading session. After the company’s conference call though, FDX shares were down about 2%. The initial jump in FedEx stock happened after the company beat both earnings per share and revenue expectations for its fiscal third quarter.
FDX is up 2.4% as of market open.
Earnings per share of $3.72 came in a whopping 61 cents or almost 20% above analysts’ expectations. Revenue of $16.5 billion grew 10% year-over-year (YOY) and beat estimates by $350 million. What’ behind these big beats?
Higher base rates and lower fuel costs certainly helped as well as an increase in shipping volume. Some of those gains were offset with increased “peak-related costs” and higher compensation accruals, but still came out as an overall net-positive.
E-Commerce vs. Bricks-and-Mortar
Obviously the trends in e-commerce provide a long runway for companies like FedEx and United Parcel Service, Inc. (NYSE:UPS). Right now Amazon.com, Inc. (NASDAQ:AMZN) provides a big boost to FDX and UPS’s businesses, but some worry about Amazon’s long-term potential to be a threat. That’s as Amazon works on its logistics networks and delivery formats. While it may be foolish to doubt Amazon, I don’t think it’s time to sell FedEx stock simply on that prospect alone.
E-commerce continues to gain steam and as it does so, more and more consumers are shopping online. While AMZN could eventually send its drone delivery system buzzing from neighborhood to neighborhood, FDX and UPS will continue to benefit for years to come.
While I still feel there is a secular opportunity for FedEx in e-commerce — helped by the improving global economy — we shouldn’t neglect bricks-and-mortar establishments either. Specifically on Tuesday morning, FDX announced an expansion with Walmart Inc (NYSE:WMT). The two were running a pilot program on a store-within-a-store concept in 47 stores across six states.
That will now expand to 500 Walmart locations. Customers can print, pack and ship from these locations. They can also ship packages to other stores for pickup, as the location will hold the package for five business days. Much like the way Amazon partnered with Kohl’s Corporation (NYSE:KSS) and acquired Whole Foods Markets, the key to retail appears to be a solid mix of physical and online locations.
FedEx’s deal with Walmart highlights a similar concept.
Valuing FedEx Stock
As it stands, analysts expect earnings of $13.61 per share for fiscal 2018. Getting a feel for the total may be difficult though, as management could not give us an accurate outlook thanks to its pension accounting adjustments. As a result, we’ll have to go with what the analysts are looking for, which is growth of just over 10% for the year. In 2019, they expect earnings growth of more than 25%.
On the sales front, analysts are looking for revenue to grow 7.1%in 2018 and 5.2% in 2019. As it stands, we are paying about 18 times 2018 earnings estimates; estimates that could prove too conservative. FDX shares trade at less than 15 times 2019 estimates — and remember there’s just one quarter left before FedEx gets to this time period.
FedEx stock pays a dividend yield of 0.8%, which isn’t great but is something to note as well. All in all, we have a stock with a secular tailwind and reasonable valuation. But what does its stock price tell us?
Trading FDX Shares
FDX stock actually has a great looking chart. While shares may not be acting well after the report, a lot can change in a few days following earnings. Below is a 30-month weekly chart, which shows the longer-term trend that’s in place.
Click to Enlarge
You’ll see the blue trend-line that’s been support since early 2016. FedEx stock has not closed below this level for over two years.
The black line highlights the significant level of $255, which is currently acting as resistance. How to play is simple: investors can be long between current levels and $240-ish, which is where trend-line support is.
If all goes correctly, this trend-line should eventually push FedEx stock through resistance near $255. Once that happens, it should have a clear path to its previous highs near $275. If support gives way, consider exiting the position.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
