If you are thinking FedEx (NYSE:FDX) is going to have a strong quarter, you are probably right. The company is forecasting a 10% increase in holiday deliveries that, when coupled with all the price increases, should deliver revenue growth in the mid-teens, at least if not up into the 20% range. Because the analysts are forecasting only a 9% increase in revenue, there is a chance for significant outperformance, but there are some other concerns to be aware of.
The company’s bottom line was impacted by $320 million last quarter due to supply-chain issues, specifically related to labor. Because we expect those issues to persist, there is a chance the margins will narrow and bottom-line results will fail to impress the market, and that is what matters.
Insiders And Institutions Have Been Trimming Shares
Insiders were selling shares of FedEx earlier in the year, but those sales have stopped. A broad array of execs and directors made 13 transactions in the second quarter worth $63.75 million. This is just a drop in the bucket in regards to the company’s shares and market cap but did coincide with the market top set earlier in the year. Insiders still hold about 8% of the stock, and the institutional interest is still strong too.
Institutional interest is still strong, but the tide may have turned. While the institutions were net buyers earlier in the year, not only has activity picked up substantially, but sales are outpacing purchases. So far in the fourth quarter, net sales have outpaced purchased by $1.13 billion, or roughly 1.75% of the market cap. That’s still a small amount in relation to the overall market picture, but a telling sign for investors. If the institutions are trimming shares, they must expect negative news or at least a negative market response to whatever news there is.
What Analysts Think About FedEx
The analysts like FedEx but there are some caveats to be aware. For one, the Marketbeat.com consensus rating is only a weak "buy" among 24 analysts, so there are some sitting on the fence. And there is even one "sell."
For another, there hasn’t been any significant activity from the group since the last earnings report, and that wasn’t particularly inspiring. The bulk of the analysts lowered their price targets but to a consensus of $314, which implies about 30% of the upside for the stock. The high price target of $369 implies about 55% of the upside, and even the low price target of $250 assumes some upside is available.
The key takeaway here is that FedEx is undervalued relative to its earnings and outlook. FedEx is trading at only 12X its earnings consensus, while UPS (NYSE:UPS) and Expeditors International (NASDAQ:EXPD) both trade near 17.5X theirs. Others within the trucking industry like JB Hunt Transport Services (NASDAQ:JBHT), Saia (NASDAQ:SAIA), and XPO Logistics (NYSE:XPO) trade in a range of 17.5X to 35X their earnings, providing quite a bit of upside potential for FedEx and its peers as well.
The Technical Outlook: FedEx Is Trading At Key Support
Shares of FedEx corrected since the last earnings report and are now trading at key support. The price action appears to be confirming support at this level, near $235, but that may change in the wake of the report. Investors looking to get into FedEx may want to wait until after the report to buy in, but it looks like the trend is changing. Both the MACD and stochastic are indicating a buy on the weekly charts that is consistent with a reversal in share prices. If the earnings report is pleasing or at least palatable, we see this stock moving up to retest its recent highs near $315.
