By Neal Rau
Shares of FedEx Corporation (FDX) have returned over 50% YTD and are trading near all-time highs. The company predicts a strong holiday season, and plans to make 85 million shipments the week following cyber Monday, which would be about a 13% increase from the past year. FedEx also plans to increase shipping rates after the New Year. Is the stock still a buy at current levels?
FedEx Express said the company will increase shipping rates by an average of 3.9% for U.S. domestic, U.S. export and U.S. import services effective January 6, 2014. The FedEx Ground and FedEx SmartPost pricing changes for 2014 will not be announced until later this year. The price increases could help margins and help drive earnings when the company reports in December.
Last quarter FedEx delivered despite facing headwinds of a tough airfreight market, unfavorable fuel price movements, and one fewer operating day compared to the same quarter a year ago. The company was able to improved margins at Express, while accelerating volume growth at Ground. FedEx reiterated FY14 guidance of 7%-13% YOY growth in EPS, in line with their estimates.
Recent Quarterly Results:
· FedEx Express- Revenue of $6.61 billion, down slightly from last year's $6.63 billion. Operating income of $236 million, up 14% from $207 million a year ago and operating margin of 3.6%, up from 3.1% the previous year.
· FedEx Ground- Revenue of $2.73 billion, up 11% from last year's $2.46 billion and operating income of $468 million, up 5% from $445 million a year ago. Operating margin of 17.1%, down from 18.1% the previous year.
· FedEx Freight- Revenue of $1.42 billion, up 2% from last year's $1.40 billion. Operating income of $91 million was up 1% from $90 million a year ago. Operating margin of 6.4%, were unchanged from 6.4% the previous year.
After this, again, the stock sold off initially, this time it dropped about 4% over the few weeks following the September 18 report. However, shares rallied 27% over the next two months following that post earnings dip. Turns out billionaire investors George Soros and John Paulson joined Daniel Loeb's Third Point LLC, took large positions at the end of Q3 in FedEx Corp.
· Soros Fund Management LLC bought 1.52 million shares valued at $173 million at the end of the third quarter, according to a regulatory filing yesterday (Cost $113)
· Paulson & Co. disclosed a new stake of 646,800 shares valued at $73.8 million. (Cost $114)
· Third Point reported a holding of 2 million FedEx shares, valued at $228.2 million. (Cost $114)
Sometimes, when hedge-fund managers take large stakes in companies, they seek material changes. However, these managers will have to confront a strong-willed CEO in Fred Smith, who already has his company trading at all-time highs. Smith was optimistic about the holiday season when he was interviewed on CNBC on November 15. "We project our peak day to be Cyber Monday," Smith said. "The peak shopping day is a little different this year because the time is compressed between Thanksgiving and Christmas". We will soon officially find out if that is true.
Smith predicted a strong holiday season for his company, with 10% - 11% growth in shipments to 22 million on Cyber Monday. He added that the company plans to make 85 million shipments that week, about a 13% increase from the past year. However, he was not as optimistic on the economy. "The economy is not strong," Smith said. "It is not strong because we don't have pro-growth policies in terms of taxes and trade and the centerpiece of that is reforming the tax code to incentive more business investment."
FDX has returned 76% over the most recent two-year period, while competitors United Parcel Service, Inc. (UPS) is up 50%, and C.H. Robinson Worldwide, Inc. (CHRW) lost 11% and Expeditors International of Washington (EXPD) gained 6%.
FedEx reports its next quarterly report on December 18 before the market open. Smart money will be watching price of FDX, and shares of FedEx are up over 50% YTD. The large positions taken recently by hedge funds are sitting on better than 20% profits right now, so if these fund managers anticipate any weakness in the coming quarter, they could look to take profits. Investors, who chase the stock at resistance, might find themselves behind the curve.
In the end price is what makes us money, and according to the Stock Traders Daily real-time trading report, FDX is testing long-term resistance. We are sellers near resistance, and if resistance holds, we would expect shares to move lower and eventually test support. Based on the real-time trading report published by Stock Traders Daily, FDX is a sell/short at resistance, with risk controls in place if resistance breaks higher.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: By Neal Rau for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.