North America

Earnings Preview: FedEx Q2 2017 (FDX)

By: Craig Bowles

Overview

FedEx Corporation (FDX) is slated to report 2Q 2017 earnings after the bell on Tuesday, December 20th. The earnings release is expected at approximately 4:15 p.m. ET with a 5:00 p.m. earnings conference call webcast available at FedEx Investor Relations. Results from FedEx are widely seen as a proxy for economic growth and tend to heavily influence the broader market gauges, including the equity index futures.

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Outliers & Strategy

Key measures:

  • Non-GAAP Earnings Per Share (EPS): The Street estimate is $2.90 (range $2.68 to $3.00) (Yahoo! Finance). The company produced a non-GAAP EPS for five of the past six quarters that was comparable to analysts’ estimates. Consensus was $2.89 three months ago.
  • Revenues: Expectations are for $14.90 bln (range $14.72 bln to $15.19 bln).
  • Earnings Per Share (EPS) Guidance for 3Q2017: The current Street estimate is $2.89 (range $2.78 to $3.04).
  • Adjusted Earnings Per Share (EPS) Guidance for FY2017: Company guidance is for $10.85 to $11.35.
  • Earnings Per Share (EPS) Guidance for FY2017: Company guidance is for $11.85 to $12.35. The Street estimate is $12.15 (range $11.93 to $12.38).
  • FedEx P/E of 29.8 compares to a 5-year average of 21.9; P/B of 3.8 compares to a 5-year average of 2.3; P/S of 1.0 compares to a 5-year average of 0.8; P/CF of 10.2 compares to a 5-year average of 9.1. Dividend yield of 0.7% a 0.5% 5-year average.
  • Analysts view FedEx with 11 Buy ratings, 10 Hold, and 0 Sell, according to MarketBeat.com.
  • FedEx insiders sold a net 161,026 (22,667 last qtr) shares over the last three months and 521,331 shares in the past year (source: NASDAQ.com). In January 2016, the company approved the repurchase of up to 25 million shares of common stock.
  • FedEx results could have a large impact on other air delivery and freight service companies, such as UTi Worldwide (UTIW) and United Parcel Services (UPS).
  • FedEx shares have a 1-day average price change on earnings of 4.41%. Options are pricing in an implied move of 3.46% off earnings.

Recent News

  • 12/10: Oppenheimer reiterated an Outperform rating on FedEx heading into the peak holiday season/F2Q17 results citing that early favorable comScore data indicates online sales trending in the teens y/y during Cyber Week, according to a post on Barron’s.com.
  • 12/06: Bernstein maintains a Market-Perform rating on FedEx but suggests investors are too bearish about the long-term threat from e-commerce given the staggering amount of hiring needed to meet demand from e-commerce growth. Bernstein says current marginal capacity has been fully utilized and we’re at an inflection point, according to a post on Benzinga.com.
  • 11/30: FedEx made significant “proactive” changes to its portrayal of Non-GAAP EPS but may have to make further accounting changes after an SEC letter, according to a post on Marketwatch.com.
  • 11/23: FedEx is projecting a 10% increase over the more than 325 million packages it shipped last holiday season, according to a post on BusinessInsider.com.
  • 11/16: Post office losses widen to $5.6 billion this year, according to a post on Marketwatch.com.
  • 11/15: Stifel Nicolaus downgraded FedEx to Hold from Buy citing valuation, a still-fragile global economic environment, and the heavy-lifting of the TNT integration ahead, according to a post on Barron’s.com.
  • 11/02: Deutsche Bank initiated coverage of FedEx with a Buy rating citing the last remaining benefits of its profit improvement plan, synergies from its recent TNT Express acquisition take hold, and Ground investments begin to pay-off, according to a post on Benzinga.com.

Technical Review

FedEx stock has moved up from the low $40s in 2009 to the December 13, 2016 all-time high of $201.57. While 2016 has been a big year for the stock, relative weakness in the second half of 2015 has FDX only now catching up to the major averages when viewing a two-year comparison. UPS held up better than FedEx in the second half of 2015 but is lagging the “Trump” rally. Point and figure technicians have a bullish price objective of $213, so that’s nearly been met. (Chart courtesy of StockCharts.com)

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Summary

FedEx is in the process of integrating TNT Express but may have to hire more people to keep up with the growth of on-line shopping. The stock price has shown limited downside since the increased buyback announcement in January 2016. Insider selling recently picked up, however. Over the last four quarters, earnings have beaten estimates by an average of 9c. Estimize consensus for a Non-GAAP EPS of $2.96 on revenue of $14.876 bln compares to analyst consensus of $2.90 on revenue of $14.90 bln. Any change in FY2017 guidance would be of interest.

 

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