This holiday season, I want to save you time. No keep you hanging on until the end of a piece to get my views. That doesn't mean you shouldn't consider reading all of this, but 'tis the season of giving, and what I'm giving you is an avoid on FedEx (FDX) . In fact, the company should consider a name swap to FedWrecks, because that has been the earnings trend for the better part of two years now. Misses and/or lowered guidance have become synonymous with FedEx's earnings releases.
After the bell on Tuesday, FedEx reported earnings per share of $2.51 on revenue of $17.3 billion. While revenue came up just shy of expectations, the quarter miss on the bottom line certainly jarred investors. FedEx shares are down roughly 10% in the first half of trading today showing little signs of life.
Management didn't provide future optimism lowering full-year earnings from $12.03 to a range of $10.25 to $11.50 per share. That equates to a shortfall of $0.28 to $1.53 per share for the second half of the year after factoring in the $0.25 miss in Q2. That's ugly. There's no other way to paint it. And this forecast assumes the international business does not weaken further while the U.S. economy grows moderately.
As more deliveries become residential delivery, FedEx has experienced higher expenses. Unfortunately, I don't believe this is a trend we'll see changing in the near future. FedEx is moving to reduce its global FedEx Express air network, so that's a step in the right direction. However, the company needs to develop some approach to last-mile delivery. Perhaps, a handoff partnership should be considered. With the availability of online ordering and same-day in-store pickup along with overnight or two-day residential delivery options, margins on FedEx will continue to get squeezed.
Today will mark the seventh red close over the past eight earnings reports. That's one green day post-earnings in the last two years. Of those previous reports, when the stock closed red (six times), it was still down from its pre-earnings price five of those six instances at both the three-week and five-week post-earnings report. In short, if the stock is green two weeks after earnings, then it made for a good buy. Asking for FedEx to trade over $163 within the next two weeks is probably beyond any Christmas miracle granted in the past 50 years.
At least 10 Wall Street firms hit the stock with a lowered price target and/or a downgrade today, which has shares testing support around $147. A new resistance band between $155 and $160 should replace previous resistance around $165. If support fails this week then expect a sub-$140 touch before the end of the year. Given the bearish rollovers shaping up in the secondary indications, my expectations are for this selloff to continue for another week or two before bulls attempt to bounce the stock in 2020.
