FedEx Stock Sets Up Ahead Of ‘Growth Catalyst Quarter’; Olive Garden Parent Also On Deck

The number of stocks lining up for earning is tapering off, but a few tickers of note remain for the coming week. FedEx (FDX) reports on Tuesday, which could move FedEx stock. It will be followed by homebuilder KB Home (KBH) on Wednesday and, on Thursday, Darden Restaurants (DRI) and Accenture (ACN).

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FedEx stock looks actionable. Shares are clearing a flat base ahead of its earnings report Tuesday after the close. The stock rose above its 50-day moving average Tuesday and on Thursday peeked above the 235.81 buy point. Volume was light, however.

Shares made a big splash on May 18 after Deutsche Bank maintained a buy rating and raised its price target on the delivery company to 282. That is a 20% upside from current levels. Deutsche Bank sees a $1 to $2 addition to fiscal year EPS estimates of $20.15, with cost-cutting acting as a strong catalyst for growth starting with the current quarter.

The airfreight and delivery leader has earned a Relative Strength Rating of 82 as it continues a recovery from its September 2022 lows. FedEx has gained 36% so far this year.

FedEx Stock Rises On Raised Outlook

The stock was one of the best performers on the S&P 500 on March 17, gaining 8%. Despite reporting declines for February-quarter earnings and sales, the iconic freight services company raised its full-year outlook.

Weak demand for FedEx Express and inflation weighed on results. Services revenue grew 34% to $87 million from $65 million a year ago, while ground and freight segments saw small declines.

The company has been stepping up efforts to cut costs and improve yield. It plans to consolidate its three segments — the “time-definite” Express, the “day-definite” low-cost Ground and its “less-than-truckload” Freight — and reduce its operations to less than 100 stations by 2027.

Barring certain accounting adjustments, FedEx forecast full-year earnings of $13.80 to $14.40 per share, above earlier views of $12.50 to $13.50.

Analysts polled by FactSet expect $4.86 earnings per share in the March-May quarter on sales of $22.6 billion, with revenue from freight and express segments rising while the ground business lags.

Darden Stock Also Worth Watching

Another company worth watching is Darden Restaurants, which reports Thursday before the market open. The Olive Garden restaurants parent had steady sales growth of 6% to 14% the past four quarters. That’s a slowdown from 41%-51% gains in the three quarters before that, which saw favorable comparisons vs. pandemic-era periods.

Earnings have been mixed. EPS grew 21% to $2.34 in the February-ended quarter. That was an improvement from a 3% gain in the November quarter and an 11% drop the previous quarter, according to MarketSmith. Sales for the last reported period grew in all its divisions: Olive Garden, LongHorn Steakhouse and other businesses.

FactSet estimates are for sales growth of 8% in the fiscal fourth quarter to $2.8 billion, with earnings per share of $2.54 reflecting 5% growth.

On Wednesday, Darden completed the acquisition of Ruth’s Hospitality Group, parent of Ruth’s Chris Steakhouse — in a deal valued at $715 million. Darden said the acquisition should be accretive to Darden’s earnings in fiscal year 2024 by about 10 to 12 cents per share.

Options Trading Strategy

A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the options trading strategy works and what a call option trade recently looked like for FedEx stock.

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First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Others might have already broken out and are getting support at their 10-week line for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.

In options trading, a call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.

Put options are for weak performers with bearish charts. The only difference is that an out-of-the-money strike price is just below the underlying stock price. A put option gives the holder the right to sell 100 shares of a stock at a specified price.

You earn profits when the stock falls below the strike price with a put option.

Check Strike Prices

Once you’ve identified an earnings setup for a call option, check strike prices with your online trading platform, or at Cboe.com. Make sure the option is liquid, with a relatively tight spread between the bid and ask.

Look for a strike price just above the underlying stock price (out of the money) and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.

Choose an expiration date that fits your risk objective but keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.

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This options trading strategy lets you capitalize on a bullish earnings report without taking too much risk. Risk is equal to the cost of the option. If the stock gaps down on earnings, the most you can lose is the amount paid for the contract.

FedEx Stock Option Trade

Here’s how a recent call option trade looked for Adobe, a liquid name in the options trading market.

When FedEx stock traded around 235, an at-the-money monthly call option with 235 strike price (June 23 expiration) came with a premium of around $7.80 per share per contract, or nearly 3.3% of the underlying stock price at the time.

One contract gave the holder the right to buy 100 shares of FedEx stock at 235 per share. The most that could be lost was $780 — the amount paid for the 100-share contract.

When taking the premium paid into account, FedEx stock would have to rally past 242.80 for the trade to start making money (235 strike price plus $7.80 premium per share).

Keep in mind that this isn’t a trade for a small portfolio because buying 100 shares of FedEx stock at that strike price would cost $23,500.

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