To Trade or Not to Trade: A FedEx Corp. Earnings Preview

Mar.16.11 | About: FedEx Corporation (FDX)

FedEx Corp. (NYSE:FDX) reports fiscal third quarter earnings on Thursday, March 17, before market open. The whisper number is $0.85, three cents ahead of the analysts estimates. FedEx has exceeded the whisper number in 26 of the 36 earnings reports for which we have data.

Trading on an earnings event requires an understanding of post-earnings price movement, both after hours and intra-day. We'll take a look at the average post-earnings price movement, when those moves occur, and if FedEx presents an earnings trade opportunity.

Since FedEx reports earnings before market open, it's important to look at regular hours trading price movement following its earnings release. The average price move during next available intra-day trading (market open to market close) for the past four quarters is -0.8% ... obviously a very limited but negative price move.

Longer term earnings analysis (last four years of earnings) shows the company tends to see (on average) positive price movement of -0.5% (intra-day) in one trading day following its earnings report, and -1.0% in five trading days. Again, a limited (and negative) price move.

FedEx has topped the whisper number in the past three out of four quarters, but it lacks a consistent price reaction. Over the past four quarters, beat or miss expectations within five trading days following its earnings reports, the average price move is -0.7%.

Other factors that may influence post earnings price movement:

The majority of investors polled are expecting the company to provide a positive outlook (by slim margin):

  • Positive: 55.6%
  • Neutral: 44.4%
  • Negative: 0.0%

FedEx earnings have historically given investors a positive surprise (by large margin) as they have exceeded investor expectations more times than missed:

  • Beat whisper: 26 qtrs
  • Met whisper: 0 qtrs
  • Missed whisper: 10 qtrs

Summary: The whisper number is showing some investor confidence this quarter as it is three cents ahead of the analysts estimates. The average price movement (either intra-day, long-term, or short-term analysis) is limited (negative) and inconsistent through five trading days. And while the company tends to top the whisper number, the price moves are still negative and limited. There is some confidence from investors for the next quarter's outlook. The company would have to report well ahead of the whisper number for earnings to be considered positive and, based on expected outlook, provide strong future guidance for the stock to see a decent positive pop. Data indicates that any post earnings trade would be high risk. The negatives outweigh the positives, and data indicates FedEx does not present a viable short-term trading opportunity for most traders.

When analyzing the data we collect, the most important aspects are how a company reacts to beating or missing the whisper number, the average post earnings price movement, and in what timeframe. Keep in mind that trading on whispers is a technical play on market psychology, rather than a bet on a company's fundamental strengths.

A company's "reaction" to the whisper number expectation is the key; on average, companies that exceed the whisper are "rewarded," while companies that miss are "punished" following an earnings report.

Companies that exceed both the whisper number (from and the analysts estimate see a 2.5 times greater positive post earnings price move than companies that only exceed the analysts estimate but miss the whisper.

The whisper number is derived from an average of individual investors, floor traders, investment advisors, and market strategists expectations regarding earnings for the most recent quarter.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.