Shares of FedEx (NYSE:FDX) have fallen over 15% in just the past four tradings days, with the latest leg down attributable to an analyst downgrade. FDX now stands at the lowest level since May 2017 and is fast approaching major long-term support at $185. While certainly some of the recent downdraft was warranted given the slowing economy, the selling has reached an extreme — especially given the recent big drop in oil prices. Look for FedEx to begin to take off during the all-important holiday season.
FedEx stock is now trading at the cheapest valuation levels in the past 10 years. The current price-to-earnings ratio is now below 11, which is a massive discount to the the five-year average of 26.9. FDX is also valued well below both the industry average P/E of 14.8 and the S&P 500 multiple of 18.8.
This marks the largest valuation gap between FedEx and the overall market, highlighting just how cheap FedEx has become after the recent carnage.
Technicals are at extremely oversold levels with FedEx stock looking poised for a pop. The MACD has reached extreme negative readings that have marked significant lows in the past. Implied volatility (IV) is at the highest levels of the year, another sign that the downside fear may be getting overdone.
FDX is also trading at well below the 50-day moving average of $223.51. Previous times FedEx diverged this far below the 50-day moving average proved to be a prescient time to buy FDX stock.
FedEx is normally correlated to the S&P 500, but recently, that correlation has broken down dramatically. Since May, the S&P 500 is basically flat while FDX has fallen 22%. I expect this correlation to converge back and for FedEx to be a relative outperformer over the coming months.
Bottom Line on FedEx Stock
FedEx is expected to report earnings Dec. 18 after the market close. Expectations are for $4.05 in earnings-per-share on revenues of $17.75 billion. The whisper number is for $4.10 in earnings. FDX has beaten estimates in three of the last four quarters, yet the stock is down over 20% in that same time frame. I always like the combination of better earnings and lower stock prices when considering potential buys.
Given the historically cheap valuations and extremely oversold technicals, anything but a complete earnings disaster should be enough to send FedEx stock higher. Investors and traders alike would do well to consider adding FDX stock to their portfolio at current levels.
Tim Biggam may hold some of the aforementioned securities in one or more of his newsletters. Anyone interested in finding out more about Tim and his strategies can go to https://marketfy.com/item/options-and-volatility.
