FedEx (FDX) is seeing shipments soar during the holiday season while the first batch of coronavirus vaccines began shipping in December. Is FedEx stock a good buy?
For the answer, take a look at FedEx earnings and the FDX stock chart.
FedEx Stock Fundamental Analysis
The Memphis-based shipping giant 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.
FedEx earnings-per-share growth has averaged -8% over the past three years, according to the IBD Stock Checkup. Sales growth rose an average of 5% over that span.
In fiscal second-quarter results released on Dec.17, FedEx earnings soared 92% to $4.83 per share, crushing analysts’ estimates. Revenue climbed 19% to $20.6 billion, also beating views.
“While the overall environment remains uncertain, we expect earnings growth in the second half of fiscal 2021 driven by the anticipated heightened demand for our services as we continue to execute on our strategic priorities,” CFO Michael Lenz said in the release.
FedEx didn’t provide a fiscal 2021 earnings forecast. But said its capital spending outlook for the year remains $5.1 billion.
The company planned to add more than 70,000 positions in the lead-up to the peak delivery season. It earlier announced that FedEx Express, FedEx Ground, FedEx Home Delivery and FedEx Freight will increase shipping rates an average of 4.9% beginning in January.
As Covid-19 cases surged in the U.S. ahead of the Thanksgiving holiday, states reduced in-store occupancy limits for retailers. Retailers expanded Black Friday deals outside the traditional day after Thanksgiving sales to boost online orders.
While FedEx beat Q2 estimates, investors generally should look for stocks with sustained earnings and sales growth of at least 25%. FedEx earnings and sales are nowhere close to this.
FedEx Stock Technical Analysis
FDX stock briefly cleared a flat base with a 293.40 buy point in late November, according to MarketSmith chart analysis, but soon dipped back below the pivot.
The stock broke through its 200-day line following earnings in early July following months of resistance at the line. But FDX stock dived back below its 50-day line after the Q2 earnings report.
The stock market started to climb on Nov. 23 as the Trump administration began formal transition proceedings to the Biden administration. In addition to the e-commerce boom and the upcoming rush of vaccine deliveries, FDX stock could see more upside as President-Elect Joe Biden’s trade policy is expected to be less capricious and confrontational than President Trump’s.
The relative strength line for FedEx stock, which compares FDX to the S&P 500 index, neared a record high in early December before falling on earnings. The line had crashed amid the start of the coronavirus pandemic.
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 Prepares For Covid-19 Vaccine
But the Pfizer vaccine needs to be kept at 94 degrees below zero Fahrenheit and FedEx has been building its cold storage facilities to store the vaccine doses. It has also boosted its ability to carry dry ice on cargo aircraft. Rival UPS (UPS) is also ramping up its supplies of dry ice to ship vaccines.
FedEx Ties With Microsoft, Amazon
In May, FedEx and Microsoft (MSFT) announced a strategic alliance to improve shipping for commercial customers, a shot across the bow at mutual rival Amazon (AMZN).
The multiyear pact will combine FedEx’s global logistics network with Microsoft’s AI and cloud expertise, a joint release said. A 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.
In December 2019, Amazon barred third-party sellers on its site from using FedEx Ground for Prime shipments. Back in August, FedEx didn’t renew its ground-shipping contract with Amazon, and it cut its domestic air deliveries for the e-commerce giant in June.
Amazon reversed its decision on third-party sellers on Jan. 14, saying that FedEx is meeting Amazon’s on-time delivery requirements.
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 lower ties.
FedEx Invests In Drones
FedEx and UPS are seeing a shortage of delivery vans as the coronavirus shut down factories that built the vehicles. The shortage isn’t delaying packages but instead is adding costs for shipping providers. Amazon said it hasn’t felt the squeeze of the van shortage.
But FedEx still has options in the sky. FedEx operates the world’s largest fleet of cargo aircraft and now it’s looking at new alternative transportation options.
In October 2019, FedEx delivered a package of snacks, over-the-counter medication and gifts from Walgreens (WBA) 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, Walmart is partnering with drone delivery startup Zipline to deliver certain health and wellness products in the U.S. in 2021.
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 next year.
With demand booming, pricing power is also up, allowing FedEx to leverage more earnings growth. A Biden administration will be better for trade, and FedEx will play a major part in distributing the Covid-19 vaccine.
But management noted continued uncertainty during the pandemic, which has reached a new wave, and notably declined to offer any detailed guidance in its fiscal Q2 report.
Bottom line: FedEx stock is not a buy right now as shares remain below their 293.40 official buy point and have dived back below their 50-day line.
Investors looking for more stocks to buy can find other companies with strong stock technicals to put on a watch list. 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 Gillian Rich on Twitter @IBD_GRich for stock news and more
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