Option Trade
FedEx Corporation (NYSE:FDX) Calls
Monday, June 19, 2017

** OPTION TRADE: Buy the FDX July 21 2017 210.000 CALL at approximately $6.25. Place a pre-determined sell at $12.50.

Note: No protective stop losses added -- but if you wish to do so make it $2.50.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

FedEx Corporation (NYSE:FDX), which provides a portfolio of transportation, e-commerce and business services under the FedEx brand, is expected to release its fiscal fourth-quarter results on June 20 after the closing bell.  Analysts are expecting earnings of $3.90 per share. During the same period last year the company earned $3.30 per share.

FedEx had delivered a negative surprise of 10.65% last quarter. The company's earnings per share (on an adjusted basis) of $2.35 were well short of the Consensus Estimate of $2.63. Also, the bottom line declined year over year due to higher costs. However, quarterly revenues climbed 18.1% year over year and surpassed the Consensus Estimate.

FedEx Corporation is expected to post revenue of $15.69 Billion in the current quarter, according to consensus of 8 analysts. The high and low revenue estimates for the current quarter are $15.89 Billion and $15.54 Billion, respectively. The company reported revenue of $13.59 Billion in the same period last year.

FedEx has been a top performer over the last year, and the future looks bright for the company. All retailers are placing additional focus on their online businesses, which should keep demand high for shipping companies moving forward.

Analysts expect strong year over year earnings growth, and looking ahead analysts expect that trend to continue. For the next five years, Wall Street expects annual earnings growth of 11.8%, which should be strong enough to keep shares building on recent gains.

The stock is up 12.28% on the year.

FedEx Corporation has a 1-year low of $145.00 and a 1-year high of $211.88. The company has a market cap of $56.28 billion, a PE ratio of 29.93 and a beta of 1.28. The firm’s 50-day moving average is $196.50 and its 200 day moving average is $192.76.

Influencing Factors to Consider

After two successive earnings misses, the company now expects to perform strongly in the fiscal fourth quarter. It expects a margin of over 15% at its Ground unit in the fourth quarter of the fiscal, thereby driving the strong results, predicted for the final quarter of fiscal 2017.

FedEx stands to benefit from a healthy e-commerce environment, regardless of what specific vendor those sales might come from. As the company itself has noted, "e-commerce, including B2B, and global trade growth are increasing demand for (FedEx's) services." As a result, package volume and yield across all segments have been growing, even if at a low-to-mid single-digit pace in some cases. Interestingly and playing to this same theme, the company announced FedEx Fulfillment in February to provide logistics services to small- and medium-sized businesses that conduct business online.

The strong growth of e-commerce is also expected to aid results in the quarter. Moreover, FedEx's expanded product portfolio following the acquisition of TNT Express should aid results. During the quarter, FedEx launched flights connecting TNT's European air hub in Liège (Belgium) to the FedEx World Hub in Memphis (U.S.). Following this move, the TNT customers now have a direct access to the strong portfolio of FedEx services in both the U.S. and Canada.

The company's efforts to reward shareholders through dividend payments and share buybacks are also worth appreciating, showing the company's strong financial condition and bright prospects. Moreover, a look at past records reveals FedEx's stable dividend payment history.

Analysts and Hedge Funds Opinions

J P Morgan Chase & Co lifted their target price on FedEx Corporation to $236.00 in a research note on Wednesday, March 22nd.

Edward Jones raised shares of FedEx Corporation from a “hold” rating to a “buy” rating in a research report on Saturday, March 11th.

Also, several other equities analysts have recently commented on the company…..

  • Vetr raised shares of FedEx Corporation from a “hold” rating to a “buy” rating and set a $208.57 target price on the stock in a research note on Tuesday, February 21st.
  • BMO Capital Markets raised shares of FedEx Corporation from a “market perform” rating to an “outperform” rating and set a $220.00 price objective on the stock in a research report on Monday, March 6th. They noted that the move was a valuation call.
  • Credit Suisse Group reissued an “outperform” rating and set a $209.00 price objective (up from $205.00) on shares of FedEx Corporation in a research report on Monday, March 6th.
  • Finally, Loop Capital initiated coverage on FedEx Corporation in a report on Thursday, April 6th. They issued a “buy” rating and a $234.00 price target on the stock.

One analyst has rated the stock with a sell rating, six have issued a hold rating and nineteen have given a buy rating to the stock. The stock currently has an average rating of “Buy” and a consensus target price of $219.69.

Several institutional investors have recently made changes to their positions in the stock…..

  • Mutual of America Capital Management LLC increased its position in shares of FedEx Corporation by 10.6% in the third quarter. Mutual of America Capital Management LLC now owns 39,529 shares of the shipping service provider’s stock valued at $6,905,000 after buying an additional 3,784 shares during the last quarter.
  • NEXT Financial Group Inc increased its position in shares of FedEx Corporation by 30.9% in the third quarter. NEXT Financial Group Inc now owns 6,077 shares of the shipping service provider’s stock valued at $1,062,000 after buying an additional 1,433 shares during the last quarter.
  • Boys Arnold & Co. Inc. increased its position in shares of FedEx Corporation by 0.9% in the third quarter. Boys Arnold & Co. Inc. now owns 9,812 shares of the shipping service provider’s stock valued at $1,714,000 after buying an additional 85 shares during the last quarter.

Harvey’s Options Volatility Indicator

Conclusion

FedEx stock has been performing well of late. Shares of FedEx have outperformed the categorized Transportation - Air Freight industry in the last one month. The stock has gained 12.28%, while the industry improved 8.83%, over the same period.

FedEx is a well-managed company with a solid balance sheet exposed to what seems to be the right trends. Trading at only 15.1x fiscal 2018 earnings and given the five-year EPS growth expectation of 13%, FDX seems like an attractive proposition

An earnings beat might not be too difficult for FedEx in the quarter.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the FDX July 21 2017 210.000 CALL at approximately $6.25. Place a pre-determined sell at $12.50.

Note: No protective stop losses added -- but if you wish to do so make it $2.50.

 

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