What’s Next For FedEx Stock After A 4% Drop Last Week?

by Trefis Team
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[Updated: 6/7/2021] FDX Stock Update

The stock price of FedEx (NYSE:FDX) has seen a 4.3% drop over the last five trading days. There is no company-specific development that warrants a decline in its stock. That said, FDX stock has seen a large rally, rising 2x over the last one year, significantly outperforming the broader markets with the S&P500 up just 31%. This can be attributed to a massive growth in the company’s ground shipments, driven by a rise in demand for e-commerce during the pandemic. This has led to a 2x growth in the company’s bottom-line, rising to $12.55 on a per share basis for the nine-month period ending Feb 2021, compared to $6.17 over the prior year period. FedEx will report its fiscal Q4 and full-year results later this month.

Given that FDX stock has fallen 4.3% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term. Using the recent trend (4.3% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that FDX stock will likely move higher over the next one month (twenty-one trading days). 

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for FDX stock average around 2.1% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days), slightly below the 3.1% expected return for the S&P500 over the next month (twenty-one trading days). However, given that FedEx is nearing its quarterly results announcement, the stock price move will largely be driven by the company’s performance in fiscal Q4. 

But how would these numbers change if you are interested in holding FDX stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test FedEx stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

Some Fun Scenarios, FAQs & Making Sense of FedEx Stock Movements:

Question 1: Is the average return for FedEx stock higher after a drop?

Answer: Consider two situations,

Case 1: FedEx stock drops by -5% or more in a week

Case 2: FedEx stock rises by 5% or more in a week

Is the average return for FedEx stock higher over the subsequent month after Case 1 or Case 2?

FDX stock fares better after Case 1, with an average return of 2.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 2.2% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how FedEx stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold FedEx stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For FDX stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for FedEx after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although FDX stock appears to be an exception to this general observation.

It’s pretty powerful to test the trend for yourself for FedEx stock by changing the inputs in the charts above.

 

[Updated: 5/26/2021] FedEx Rates Update

FedEx (NYSE: FDX) recently announced a revision in surcharges for certain express and ground shipments. The logistics company periodically revises its rates and surcharges in order to keep up with any changes in operating costs. As per the latest update, FedEx has revised its peak additional handling surcharge for express and ground services within the U.S., and international ground service, to $3.75 per package from $3.00 per package currently, reflecting a 25% growth. Similarly, a peak surcharge for ground economy package will be increased by 33% to $1.00 per package. Lastly, the peak residential delivery charge for express and ground services in the U.S. will double to $0.60 per package, compared to $0.30 currently. All these changes will come into effect from June 21, 2021.

While FedEx has seen a massive growth in ground shipments in the current pandemic driven by a rise in demand for e-commerce, the company has also seen increased operating costs, and it makes sense to pass-on the increase to customers, in order to retain or expand its margins. While the company has benefited from volume growth over the recent quarters, it will likely see growth in its margins going forward, driven by better pricing.

Looking at the company’s performance for the nine month period ending Feb, 2021, total revenue increased 18% to $16.4 billion, primarily led by a large 37% growth in ground shipments revenue, a trend expected to continue in the near term. The company’s adjusted net margins also improved to 5.7% vs. 3.5% for the prior year period. Higher revenues and margin expansion meant that FedEx’s EPS almost doubled to $13.17 for the nine-month period ending Feb, 2021, compared to $6.97 in the prior year period.

This strong performance was rewarded by the investors, and FDX stock has also seen a large 2.5x rise over the last one year, compared to just a 40% move for the S&P500. But now that FDX stock has seen such a large move, will it resume its upwards trajectory over the coming weeks, or is a decline in the stock imminent? Going by our FedEx Valuation of $342 per share, based on expected adjusted EPS of $18.01 for fiscal 2021 (fiscal ends in June) and a P/E multiple of 19x, we believe that there is still some room left for growth.

[Updated: 3/16/2021] FDX Fiscal Q3 Earnings Preview

FedEx (NYSE: FDX) is scheduled to report its fiscal Q3 2021 results on Thursday, March 18. We expect FedEx to likely post revenue in-line, and earnings below the street expectations. The overall rebound in the economies across the globe likely aided the shipment revenues for its Express as well as Ground segments.

However, our forecast indicates that FedEx’s valuation is around $320 per share, which is roughly 20% above the current market price of around $267. Even if FedEx were to report below consensus earnings, the stock looks attractive at the current valuations.  Our interactive dashboard analysis on FedEx’s Pre-Earnings has additional details.

(1) Revenues expected to be in-line with the consensus estimates

Trefis estimates FedEx’s Q3 2020 revenues to be around $19.9 Bil, in-line with the consensus estimate. FedEx over the recent quarters has seen an increase in demand for shipments, primarily led by a surge in e-commerce orders, as people preferred to stay in-doors, during the pandemic. While this primarily aided the company’s Ground segment revenues, now with the gradual opening up of economies and vaccination drives, the company will likely see a pickup in demand for its other segments, as well. Looking back at fiscal Q2 2021, revenues grew a solid 19% to $20.6 Bil, with Ground segment seeing a sharp 38% y-o-y jump in revenues. We expect strong demand for the Ground segment to continue in the near term. Our dashboard on FedEx’s Revenues offers more details on the company’s segments.

2) EPS likely to be below the consensus estimates

FedEx’s fiscal Q3 2021 earnings per share (EPS) is expected to be $3.10 per Trefis analysis, 8% below the consensus estimate of $3.36. FedEx’s net income of $1.3 Bil in fiscal Q2 2021 reflected a large 2x rise from its $660 million figure in the prior-year quarter. This can be attributed to higher revenues and margin expansion, partly due to lower fuel costs. However, margins could be impacted in the near term due to integration of smart post package volume into the Ground business.

(3) Stock price estimate 20% above than the current market price

Going by our FedEx’s Valuation, with an EPS estimate of around $17.17 and a P/E multiple of around 19x in 2021, this translates into a price of $320, which is 20% above the current market price of around $267. While the 19x figure for FedEx is higher than the levels of 16x seen in 2018, it compares favorably with 21x P/E for its peer UPS.

Although the company could face some pressure on its margins in the near term, we believe the demand for the residential Ground shipments will continue to drive the overall revenue growth, along with the higher demand for Express segment, driven by the resumption of economic activities and increased demand for shipments.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year

While FDX stock may see a rise in the near term, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for United Parcel Service vs. Sprouts Farmers Market.

See all Trefis Price Estimates and Download Trefis Data here

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