Options Trade – FedEx Corporation (NYSE:FDX) Calls
Sunday, March 15, 2015

**OPTIONS TRADE: Buy the FDX Apr 2015 175.000 call (FDX150417C00175000) at or under $4.00, good for the day. Place a protective stop loss at $1.60 and a pre-determined sell at $7.50.

by Ian Harvey

March 15, 2015


FedEx Corporation (NYSE: FDX), which provides a portfolio of transportation, e-commerce and business services under the FedEx brand, is scheduled to report its fiscal third-quarter results on March 18. FDX will release the results before the market opens.

The consensus estimate is $1.88 per share, up from $1.23 during the same period last year. The stock has been trading in a fairly tight sideways pattern since the start of the year, and is currently down 1.2% year to date.

FedEx has grown earnings nicely over the last year, and if it hits the consensus estimate of $1.88 for its third quarter, it would mark a year over year increase of 53%. It is not surprising that analysts expect such strong earnings growth considering the way oil has fallen since last summer. FedEx's fuel costs represent a huge percentage of its total overhead, so earnings should be on the rise. Analysts are very bullish on the stock moving forward, forecasting 20% earnings growth next year.


FedEx last announced its earnings results on Wednesday, December 17th. The company reported $2.14 earnings per share (EPS) for the quarter, missing the consensus estimate of $2.19 by $0.05. The company had revenue of $11.90 billion for the quarter.

During the same quarter in the previous year, the company posted $1.57 earnings per share. The company’s revenue for the quarter was up 4.4% on a year-over-year basis. On average, analysts predict that FedEx will post $8.970 earnings per share for the current fiscal year.

Operations and fundamentals for FedEx are extremely strong and suggest the potential for earnings and guidance upside. Analysts highlight that the company's cash levels are at an all-time high. In addition, holiday stumbles by United Parcel Service, Inc. placed FedEx in a good light in the eyes of many disappointed UPS customers.

Positive Aspects

• Analysts believe that the company's free cash flow has been a source of frustration for FedEx shareholders in the past. However, as the company has executed its plan of improving the profitability of Express and growing Ground, free cash flow (FCF) has benefited. Analysts believe FedEx is now in position to match the FCF yield of UPS through 2016.

• Analysts expect a ramp-up in capex coming soon as the company addresses capacity and production increases. Both FedEx and UPS are currently trading at about 4.6 percent FCF yields based on 2016 estimates, but analysts believe that FedEx's growth profile justifies the stock trading at a premium to UPS.

• Now that FedEx's acquisition of Genco is fully funded, analysts believe the company will likely find other uses for its $1 billion in over-capitalization. "We believe FedEx could surprise with a faster buyback or potentially another acquisition of size," analysts explained.

Analysts Opinions

Fedex has received a buy rating for the short term, according to the latest rank of 2 from research firm, Zacks. The counter could manage an average rating of 1.8 from 20 analysts.

The company has also been the subject of a number of other research reports:-

• Analysts at Credit Suisse upgraded shares of FedEx from a “neutral” rating to an “outperform” rating and raised their price target for the stock from $177.00 to $203.00 in a research note on Friday, February 27th.

• Analysts at Vetr downgraded shares of FedEx from a “buy” rating to a “hold” rating and set a $182.18 price target on the stock in a research note on Thursday, February 12th.

• Analysts at Zacks reiterated a “neutral” rating and set a $182.00 price target on shares of FedEx in a research note on Friday, January 30th.

• Finally, analysts at Argus upgraded shares of FedEx to a “buy” rating in a research note on Thursday, January 8th.

Shares of FedEx have received a consensus recommendation of “Buy” from the eighteen analysts that are currently covering the stock. Six investment analysts have rated the stock with a hold rating, nine have given a buy rating and two have given a strong buy rating to the company. The average 1-year price target among analysts that have updated their coverage on the stock in the last year is $175.23.


At its current price, FDX has a P/E of 21.8, which is a little high, but definitely not too high to keep the stock from rising on a strong earnings report. United Parcel Service (UPS) already reported back in February, with earnings matching the consensus estimate, and revenues coming in slightly higher than expected. This is a good sign for FedEx, which many believe will post earnings that are either in-line with the estimate or slightly higher. This should push the stock higher, which is great for this options trade.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the FDX Apr 2015 175.000 call (FDX150417C00175000) at or under $4.00, good for the day. Place a protective stop loss at $1.60 and a pre-determined sell at $7.50.

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