FedEx Q4 preview: Where next for FedEx stock?

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Josh Warner
By : ,  Market Analyst

When will FedEx report Q4 earnings?

FedEx is scheduled to release fourth quarter and full year earnings covering the 3-month and 12-month periods to the end of May after US markets close on Thursday June 23.

The company plans to hold a meeting with investors and analysts on Tuesday June 28 to Wednesday June 29.

 

FedEx Q4 earnings consensus

The delivery giant is forecast to report an 8.6% rise in revenue in the fourth quarter to $24.5 billion and for adjusted EPS to jump over 37% to $6.87 despite strong comparatives from last year.

If achieved, that should see annual sales rise 11.5% to $93.6 billion and adjusted EPS rise by 13.5% to $20.61.

 

FedEx Q4 earnings preview

Double-digit growth in both revenue and earnings over the full financial year will be welcomed by investors considering the tough comparatives from last year, when sales and earnings were both flattered by the pop in demand seen for delivery services as people shifted their shopping online during the pandemic.

The last quarter saw FedEx’s Express and Ground divisions held back by the Omicron variant, but this should have improved now that most countries are putting the pandemic behind them. However, labour shortages and inflation are likely to have remained a headwind in the final quarter. This is set to continue to pressure Ground margins, with the consensus suggesting costs will have risen at a faster rate than sales in the fourth quarter. FedEx Freight is set to remain the strongest part of the business, as the company can offset rising costs with higher prices and be selective over the quality of cargo it carries.

Overall, analysts believe FedEx’s adjusted operating margin will improve to 9.4% in the final quarter – marking the best quarterly margin of the financial year and setting a buoyant tone for the new year. If achieved, that should see the full year margin experience a mild dip from last year to 7.3%.

The prolonged integration of TNT Express will continue to be closely-watched, with investors hoping the company will have largely completed it by the end of the financial year. FedEx purchased Dutch rival TNT Express way back in 2016 to combine its world-leading air express network with TNT’s vast European road network. The attraction to TNT was the hope that it could provide FedEx a springboard to bolster its position in Europe, but it has ended up being a lengthy process plagued by problems. Having initially said it would take four years to fold TNT into its business, investors are still waiting for a line to be drawn under the integration six years after the deal was completed.

With the integration having proven more challenging than anticipated, TNT has so far caused a lot of headaches for FedEx over recent years, but the hope is that the deal can finally start to pay off once it is completed, turning TNT from a drag on sentiment into a new catalyst for the stock.

This will be the first set of results since FedEx shuffled its top brass at the start of June. Chairman and chief executive Frederick Smith has taken up the role of executive chairman, while president and chief operating officer Raj Subramaniam – who has gradually moved up the ranks since the TNT deal was struck - has become president and CEO.

We may have to wait to find out how Subramaniam, who previously led FedEx Express, will stamp his authority on the business considering FedEx is holding meetings with analysts during the week after the results. That may also see FedEx choose to wait until after the results to outline a detailed outlook going forward.

With that in mind, current consensus figures show markets believe FedEx can deliver a 7.2% year-on-year rise in revenue in the first quarter of the new financial year to $23.6 billion and that adjusted EPS can pop another 17.7% to $5.14.

For the full year, analysts believe it will be another year of growth for FedEx, albeit at a slower rate than investors have become accustomed to over the last two years, with estimates pointing toward a 4.9% rise in annual sales to $98.1 billion and 9% growth in adjusted EPS to $22.46.

 

Where next for FDX stock?

FedEx shares have been under pressure for over a year, having fallen 27% since peaking at all-time highs in May 2021. However, we have seen volatility increase over the past three months and the stock has now managed to breakout of the downtrend.

The recent climb higher has pushed the RSI into bullish territory and trading volumes over the past five sessions, during which it found materially higher ground, are more than double the 100-day average volume at time to suggest the stock could push higher going forward. The fact the stock came under renewed pressure after recapturing the 200-day moving average, which currently sits at $231, for the first time in 10 months shows this is a key upside level of resistance for the stock to target. From there, it can target the 2022-high of $265.

Notably, the 31 brokers that cover FedEx believe the selloff seen over the past year has been overdone and rate the stock at a Buy with an average target price of $287.23 – a level last seen in July 2021.

The stock will need to stay above yesterday’s open of $224 to install confidence that it won’t slip back below the trendline, so this should be treated as the initial floor for the stock going forward. A slip back below the trendline could see a swift move back below $196 and toward the 2022-lows.

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