A FedEx driver makes deliveries in New York City.
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Parcel shipping giant FedEx reports fiscal third quarter earnings after the close of trading Thursday.
Figuring out what investors want to hear is easy. Figuring out what the stock will do, however, is hard.
FedEx (ticker: FDX) had an oddly great year in 2020. Even though the economy tanked, the pandemic pushed people out of stores and online, which benefited volumes and pricing for parcel shippers. Earnings over the past two quarters have totaled about $9.55 a share, which is more than the company made in fiscal year 2020 ended in May.
Wall Street expects record earnings in fiscal year 2021 and 2022, which will be what it takes to keep the stock moving higher now that shares are close to an all time high.
For the Thursday report, representing fiscal third quarter numbers, analysts project $3.20 in per-share earnings from $20 billion in sales. A year ago the company earned $1.41 a share from $17.5 billion in sales.
In the company’s fiscal second quarter ended in November 2020, FedEx earned $4.83 a share from $20.6 billion in sales, blowing away analyst sales and earnings projections. Coming into that quarterly report, analysts projected about $4 in earnings. And that $4 figure was up from earlier $2 per share projections from the middle of 2020. Things got very good, very fast for FedEx.
But even though the company cruised by expectations, shares fell almost 6%. Expectations from investors rose right along with analyst projections. Now investors want to see that pricing and profit margins are sustainable into 2021.
For the coming quarterly report, J.P. Morgan analyst Brian Ossenbeck is looking for better profit margins compared with the recently reported fiscal second quarter. This past quarter, profit margins in the ground transportation segment were weaker than expected, even though overall earnings were fine. Ossenbeck points out that costs rose a little faster than pricing in the fiscal second quarter, but that peak season pricing surcharges, put on each year by FedEx and United Parcel Service (UPS), should improve the situation.
He rates shares Buy and has a $340 price target of the stock. Cowen analyst Helane Becker rates share Buy too. Her price target is $335 a share. She is looking for a strong quarterly report writing that the air freight supply/demand balance still favors shippers such as FedEx and that the overall economic backdrop continues to improve.
FedEx stock is down about 9% over the past three months, worse than the 7% comparable gain of the S&P 500. Shares have cooled off after rising about 72% in 2020. That pause might be painful to investors, but it lowers the risk of an earnings beat followed by a stock drop, like what happened this past quarter.
Investors should still expect volatility though. Options markets imply the stock will move about 5% to 7%, up or down, after earnings are reported. The stock has average a move of more than 7% after reporting the past four quarters.
Write to Al Root at [email protected]
