FedEx Earnings Disappointed Investors for Good Reasons

Be patient catching this falling knife as it may turn out to be a machete

FedEx (NYSE:FDX) stock has been under a bear attack since it set its highs in January of 2018. Since then FDX stock has fallen $100 in a nasty descending channel that the bulls cannot snap out of it. Things got really nasty last December when FDX hit the low $150’s. Yes, the whole market was also falling but FedEx stock took a harsher beating than most.

And things haven’t gotten better. Last night management reported earnings and Wall Street hated what they saw. They were right to. FedEx missed on all metrics and committed the cardinal reporting sin: They guided lower going forward.

FDX management offered a slew of reasons for the miss. They blamed the effects of the global tariff wars, the lack of growth in Europe, Brexit, currency, etc. Not being able to pin down the causes of their problems tells me that management doesn’t have a specific plan to fix this. FedEx continues to operate as they have been, hoping that the problems — and FDX stock — just get better on their own.

The Problems for FDX Stock

It’s safe to say that owning FDX for the long term is a risky proposition. FDX is currently relying more on hopium that the trade war will end and business in China will pick up. This is not a solid growth plan. I don’t believe investors will be flocking to FDX unless there is a clear strategy that emerges soon.

I am not hating on the stock but merely stating the case as it is. Case in point, this morning JP Morgan downgraded FDX stock from Out-perform to Neutral so they agree with me on this. There are still too many analysts on Wall Street that have a BUY rating on it so those are looming downgrade headlines to come if things to reverse soon.

Some solace for the bulls is that Fedex stock was up 12% year-to-date going into the earnings — but this morning it’s giving back about half of it. There’s also United Parcel Service (NYSE:UPS). Fundamentally, FDX has a slightly cheaper price to earnings ratio than its closest competitor, but that’s not a screaming reason to buy it. FedEx can definitely get cheaper, especially if the current concerns linger.

There is also the threat of Amazon (NASDAQ:AMZN) entering FedEx’s business area. When they’ve done that in the past, those industries have rarely fared well. Just ask brick-and-mortar retail about this. I am not saying that AMZN will crush FDX or UPS but it’s definitely a foe to respect. This also adds to the downside pressure on FedEx stock.

Trading FDX Stock

On the positive side, this is still a massive company that operates worldwide and is profitable. But there are important levels to hold that could provide some footing for FDX bulls to mount a rebound rally off this earnings drubbing.

The most obvious line of support is the Christmas crash low of $151 per share. If that fails, then it opens a technical trap door that would target the 2016 lows. Luckily for the bulls, there are support zones above it. Unfortunately, they already lost the $177 per share line in overnight trading. Closing above it today would be a small victory — but it doesn’t look likely.

The most other obvious level to hold is the March-8 low of $168 per share. But there should be a support zone around $172. Today’s open will challenge all of these support levels so the bulls have a lot of hard work to do here. It is important that they close the day as high as possible.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.


Article printed from InvestorPlace Media, https://investorplace.com/2019/03/fedex-earnings-disappointed-investors-for-good-reasons/.

©2019 InvestorPlace Media, LLC