FedEx earnings outlook: e-commerce deliveries in the spotlight as stock price doubles

Reports the first quarter of 2021 results on Tuesday, September 15 after the close
Revenue Expectation: $ 17.5 billion
EPS expectation: $ 2.67

The world's largest parcel delivery service, FedEx Corporation (NYSE :), took an unexpected turn during the COVID-19 pandemic. Aided by the e-commerce boom during lockdowns and the stay-at-home environment, deliveries are increasing and margins are widening.

Investors have quickly seized this opportunity, causing FedEx shares to rise more than 125% in the past six months. The stock gained another 3.5% on Monday to close at $ 236.34.

FedEx 1 Year Review.

For those investors who have previously missed this opportunity, the important question is whether the explosive move has run its course? Investors will get some insight when the company releases its latest quarterly report later in the day.

A major driver of these optimistic sentiments was the belief that the shift to e-commerce is permanent and that increased demand will help FedEx overcome the slow growth period of the past two years.

As FedEx deliveries to corporate customers suffered during the pandemic, home deliveries increased. The company's earnings for the, which ended in May, exceeded analyst forecasts by a wide margin, as the ground unit's revenue rose 20%. Home delivery accounted for 72% of the division's sales by volume, compared to 56% in the same period a year earlier.

Before the pandemic, FedEx struggled to gain investor confidence. The main concern in keeping them on the sidelines was the ongoing troubles the European company faced after the costly acquisition of Dutch courier service TNT in 2015. That deal failed to deliver the value investors hoped to see.

A Permanent Shift

Integration challenges and the slowing European economy have cast doubt on the benefits of the TNT deal, with some analysts questioning the wisdom behind this massive undertaking. But the global health crisis has changed business dynamics, giving management an opportunity to change the business.

"I expect customers to pay more for prices in November and December going forward, and I think that will be a structural shift in the market," said Brie Carere, FedEx Chief Marketing Officer, on a conference call with analysts. in June.

Along with soaring sales on the ground, the company has managed to keep costs under control with a mix of job losses, reduced incentive compensation, aircraft retirement and delays on some of its planned investment projects.

Following these steps, some analysts see more upside in FedEx stocks. In a note last week, Cowen analyst Helane Becker raised her price target by 58%, saying she "sees no reason that positive trends should end" in the short term. She increased her goal from $ 167 to $ 264.

"Admittedly, FedEx valuation is nearing its peak right now, but the market is trying to accommodate the ongoing shift to e-commerce volumes that has caused the recent multiplication increase," Becker wrote in a note to customers.

"The market continues to pay for growth (e-commerce), even if it is at the expense of margins."

Goldman Sachs analyst Jordan Alliger also maintained a buy rating on FedEx, with a price target of $ 233. The current consensus among 23 TipRanks analysts is in favor of a & # 39; moderate buy & # 39; rating of shares in FedEx, with an average price target of $ 206.59.

Bottom Line

FedEx is clearly one of the beneficiaries of the pandemic e-commerce boom. These macro trends are likely to continue, allowing the company to ease the pressure on its cash flow and make a case for additional gains in its stock price. That said, investors shouldn't expect a massive upward move from here as the stock trades close to market consensus.

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