By Brendan Gilmartin
FedEx (NYSE:FDX) is scheduled to report 2Q 2014 earnings before the bell on Wednesday, December 18. The results are typically disseminated at 7:30 a.m. EST and will follow with a conference call at 8:30 a.m. 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. Furthermore, the guidance for the balance of the full year could impact both the underlying shares and the broader market.
Outliers & Strategy
- Earnings Per Share: FedEx EPS for the 2Q 2014 period are expected to come in at $1.63 per share, the mid-point of the projected range of $1.46 to $1.78 per share. (Source: Yahoo! Finance).
- The average beat relative to consensus estimates over the previous 10 quarters is 2.75%. Given the magnitude of the run-up in FedEx shares, look for a figure in the range of $1.75 to $1.80 to drive the shares higher from here.
- Revenues are seen rising 2.9% for the 2Q 2014 period to $11.43 billion.
- With FedEx shares trading near an all-time high, and up more than 50% YTD, look for earnings and revenues to meet or exceed the high end of the Street forecasts to drive the shares through $140 technical resistance.
- Coming into the release, the options market is pricing in a 3.5% move off earnings, below the historical average price move of 5%. Note that the front-month contract expires in just two days.
- 12/16: Deutsche Bank raised its price target on FedEx from $135 to $183, according to a post on StreetInsider.com. The firm reportedly expects FedEx to deliver stronger than expected 2Q earnings, thanks to e-commerce growth, increased market share, and expansion in the freight business.
- 12/13: Raymond James upgraded FedEx from Outperform to Strong Buy with a price target of $190.00, according to a post on Barron's Online, citing the company's cost improvement initiatives.
- 11/12: Cowen & Co. downgraded FedEx from Outperform to Market Perform, due to valuation in the wake of the recent run-up, according to a post on Barron's Online.
- 11/12: Renowned investor Dan Loeb, founder of the Third Point LLC hedge fund, disclosed his firm was buying FedEx shares.
- 10/15: FedEx authorized a new share repurchase program of up to 32 million of its outstanding shares of common stock.
FedEx shares recently broke out to an all-time high of $140.81, and is up more than 53% YTD. However, the shares have struggled to make a definitive push through this level, implying Wednesday's earnings must significantly surpass consensus estimates to trigger a breakout to the upside. Should FedEx shares fail to meet the high end of Street views, initial support is at $135, with downside risk to $130. (Chart courtesy of StockCharts.com)
FedEx shares are trading near and all-time high, benefiting from restructuring efforts announced last October designed to drastically reduce costs, share repurchases, and upgrades to its fleet. The company is also benefiting from improving e-commerce growth trends and increased market share. But with the shares up 53% YTD and difficulty making a sustained push through the $140-level, FedEx is vulnerable to even the slightest missteps, following the recent flurry of upbeat sell-side comments and technically overbought conditions.
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