FedEx (FDX) is preparing to release its first quarterly earnings report since new CEO Raj Subramaniam took the reins from founder and still-Chairman Fred Smith. Can the Memphis-based shipping giant overcome supply chain issues, labor problems and rising fuel costs? Add to that the threat of a possible recession. Is FedEx stock a good buy as of June 2022?
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For the answer, take a look at FedEx earnings and the FDX stock chart.
FedEx Stock Fundamental Analysis
On March 28, FedEx announced that founder Fred Smith would step aside as chief executive on June 1. President and COO Raj Subramaniam took over as CEO. Subramaniam, 56, joined the shipping and logistics company 30 years ago.
Under Smith, FedEx grew its annual revenue to $84 billion in fiscal 2021. In 2019, FedEx famously tangled with customer Amazon.com (AMZN) as the e-commerce giant grew its industry-disrupting delivery model.
Meanwhile, FedEx says executive chairman Smith will focus on sustainability, innovation and policy.
FedEx offers package delivery service to more than 220 countries and territories. FedEx acquired the Dutch company TNT Express in 2016 to help expand its European operations.
Its earnings-per-share growth has averaged 9% over the past three years, according to the IBD Stock Checkup. Sales growth averaged 11% over that span.
In fiscal third-quarter results released on March 17, FedEx said earnings soared 32% to $4.59 per share. That slightly missed analysts’ estimates. Revenue climbed 10% to $23.6 billion, barely beating views.
FedEx is scheduled to announce its fiscal fourth quarter earnings on June 23. Analysts surveyed by FactSet estimated FedEx will earn $6.86 a share in the fiscal fourth quarter, on sales of $24.6 billion. In fiscal 2023, analysts expect it to earn $22.61 a share on sales of $98.2 billion.
Widening E-Commerce Business
One analyst, Citigroup’s Christian Wetherbee, wrote in a May 9 report that FedEx could be poised to dramatically increase its e-commerce business.
“We think there is opportunity to widen (FedEx’s) focus in B2C to include the C,” wrote Wetherbee. “FedEx could become e-commerce’s universal shopping cart by augmenting ShopRunner’s hundreds of merchant partners to thousands.” ShopRunner is FedEx’s membership program with free two-day shipping. Wetherbee added it could that way build “a base of millions of subscribers that would get free expedited shipping.” FedEx bought ShopRunner in late 2020.
Last month, FedEx also announced a new multiyear agreement to transport the majority of shipments for e-commerce seller Boxed.
“We made a specific decision to invest in capacity and double-down on e-commerce three years ago. We saw we were skating to where the puck was going to be and seeing where the market was going,” said Subramaniam.
As Covid-19 cases begin to surge again in many parts of the U.S. ahead of summer, and as fears of possible recession appear, FedEx’s challenge is to step up its ground transportation business.
The company bought TNT Express to add to its trucking business, but so far integration has been slow. J.P. Morgan analyst Brian Ossenbeck says one of the new CEO’s tests will be “to articulate a credible ground margin improvement program and generate meaningful synergies from the TNT acquisition.”
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FedEx Stock Technical Analysis
FDX stock hasn’t been able form a base as it continues a long downtrend. The last time it formed a base was a cup with handle from December 2020 to a breakout in May 2021. At that time, it briefly cleared a buy point but then began a long descent. Recently, though, its shares broke above their 50-day moving average, and its Relative Strength Rating climbed, though to a still low of 58, according to MarketSmith chart analysis.
After an attempt to form a flat base failed, FedEx stock is trying to form a cup base, with a buy point of 241.67 emerging.
In addition to the e-commerce boom and the upcoming rush of vaccine deliveries, FDX stock could see more upside because President Joe Biden’s trade policy is expected to be less capricious and confrontational than ex-President Donald Trump’s.
FedEx stock’s CAN SLIM fundamental metrics include a low 60 IBD Composite Rating out of a best-possible 99, and a 73 EPS Rating.
The Composite Rating combines several proprietary IBD ratings into a single score. All-time winners often have a Composite Rating of at least 95 near the start of big runs.
FedEx is ranked No. 4 in IBD’s airfreight industry group, which itself is ranked a lowly 135 out of 197 groups.
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FedEx Customers And Supply Chain Issues
As of May 27, its biggest customers were Walgreens (WBA) and Dell Technologies (DELL), according to FactSet. Its biggest suppliers were tech company Berkshire Grey (BGRY) and Boeing (BA).
Clearly, though, the rising costs of both airline fuel, and gasoline and diesel for trucks, is biting into FedEx’s bottom line.
FedEx operates the world’s largest fleet of cargo aircraft and now it’s looking at alternative transportation options. In October 2019, FedEx delivered a package of snacks, over-the-counter medication and gifts from Walgreens via an unmanned aerial vehicle in Virginia.
The drone was operated by Wing Aviation, a sister company of Google under the Alphabet (GOOGL) umbrella.
But FedEx isn’t the only shipper investing in drones. In September, UPS received Federal Aviation Administration certification for unlimited drone use. UPS announced a pilot program with Walgreens rival CVS Health (CVS) last October.
In August, the Federal Aviation Administration granted Amazon approval to deliver packages by drones, though the company is still test flying drones and didn’t say when they would start delivering packages.
Meanwhile, the geographic distribution of FedEx’s operations have changed, with China accounting for a bigger share of total revenue. China sales are up 7% over three years, to a 6.9% market share as of May 27. Europe and India shares have dropped, while the U.S. has remained at 70% of FedEx’s customer base, according to FactSet.
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FedEx-Amazon Rivalry Continues As Covid-19 Deliveries Continue
FedEx is playing a key role delivering the Pfizer (PFE) and BioNTech (BNTX) Covid-19 vaccine, and from Moderna‘s (MRNA) vaccine.
The Pfizer vaccine needs to be kept at 94 degrees below zero Fahrenheit and FedEx built up its cold-storage facilities for vaccine doses. It also boosted its ability to carry dry ice on cargo aircraft. Rival UPS (UPS) also ramped up its supplies of dry ice to ship vaccines.
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In May 2020, FedEx and Microsoft (MSFT) announced a strategic alliance to improve shipping for commercial customers, a shot across the bow at mutual rival Amazon.com (AMZN).
The multiyear pact will combine FedEx’s global logistics network with Microsoft’s AI and cloud expertise, a joint news release said. The new service will give businesses real-time data to track packages. It also will alert customers to things like floods and clearance issues affecting the movement of goods.
But as the coronavirus looms over the global economy, FedEx’s chilly relations with Amazon continue as Amazon pushes ahead to build its own Amazon Shipping operations.
FedEx says Amazon accounts for a small piece of total revenue. The delivery giant is courting other e-commerce customers that offer better margins. Meanwhile, UPS is getting much of the business as FedEx and Amazon ties weaken.
In March, UPS announced an expansion of its 2019 deal with Alphabet‘s (GOOGL) Google Cloud as the logistics company rolls out new data initiatives. As part of the expansion, UPS will receive increased network, storage and compute capacity.
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Bottom Line On FedEx Stock
The FedEx earnings outlook has improved as consumers shift more of their shopping online while coronavirus vaccines add to shipping volumes and offer hope for the global economy. But the threat of rising inflation and concerns that we may be entering a recession still loom heavily for investors.
With demand booming, pricing power is also up, allowing FedEx to leverage more earnings growth. But as management has noted, e-commerce will play a much larger role in FedEx’s sales and earnings.
Bottom line: FedEx stock is not a buy right now because shares are not in a buy zone and have yet to form a new pattern. However, the stock reclaimed the 50-day line and appears to be forming a cup base. An earnings beat could be the medicine that FedEx needs now.
Investors looking for more stocks to buy can find other companies with strong stock technicals to put on a watchlist. If you want to invest in a large-cap stock, a comprehensive selection of articles is here. The IBD Big Cap 20 index offers a selection of the very best large-cap stocks to invest in when the market is in a confirmed uptrend.
Follow Michael Molinski on Twitter @IMmolinski
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