FedEx Stock Price Up 5% Today– Time to Buy FDX Stock?

FedEx stock was trading almost 5% higher in US premarket price action today after markets gave a thumbs up to its fiscal second-quarter 2022 earnings. Meanwhile, the stock is underperforming the markets and is down almost 8% for the year based on yesterday’s closing prices.

The stock is down over 25% from its peaks and is not far from its 52-week lows. What’s the forecast for FDX stock and is it a good buy in December 2021?

FedEx reported better than expected earnings

FedEx reported revenues of $23.5 billion in the quarter, 14% higher than what it has posted in the corresponding period last year. The metric was ahead of the $22.4 billion that analysts were expecting. The company posted an adjusted EPS of $4.83 in the quarter which was similar to what it had posted last year. That said, the company’s bottomline performance was far ahead of estimates and analysts were expecting the company’s earnings to fall 11% to $4.28 in the quarter.

Analysts’ pessimism was not unwarranted and even FedEx had previously talked about headwinds like labor shortage, rising wage costs, and supply chain issues. While the company talked about labor availability issues in the quarter, it also said that the situation is now easing.

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Labor shortage

Notably, there has been a massive shortage of labor in the US especially for low-wage workers and drivers. However, things seem to be getting a bit better as the labor force participation ratio has improved. Also, as the fiscal stimulus has gradually ended, we could see more people enter the labor force. Many US companies have hiked their basic wages which would also help attract more workers.

FDX reported higher operating income

FedEx reported an operating income of $1.6 billion in the quarter, which was higher than the $1.51 billion that it had reported in the corresponding period last year. Commenting on higher operating income, FDX said, “Second quarter operating income improved due to higher revenue per shipment at all transportation segments, despite the negative effect of labor market challenges that have contributed to global supply chain disruptions.” It also attributed higher earnings to “continued strategic management actions to improve revenue quality and favorable net fuel.”

Guidance

FedEx now expects adjusted earnings between $20.50-$21.50 in the full fiscal year which is higher than the previous guidance of $19.75-$21. The company also announced a $5 billion share repurchase program of which $1.5 billion is an accelerated share purchase plan, which it intends to complete before its current fiscal year ends.

This would effectively mean that the company would at least double the share repurchase in the back half of the year as it had repurchased only $750 million worth of shares in the first half of the fiscal year. It ended the fiscal second quarter with liquidity of $6.8 billion.

Commenting on the share repurchase plan, Michael C. Lenz, FedEx CFO said “The company’s new share repurchase program demonstrates our expectation of strong profit and cash flow performance in FedEx’s fiscal second half, and our commitment to delivering long-term value for stockholders.”

FedEx stock forecast

Analysts have a bullish forecast for FedEx stock and 24 of the 33 analysts have rated it as a buy or some equivalent while the remaining nine analysts have a hold rating. Its median target price of $300 is a premium of 25.8% over current prices. The street low target price of $235 is similar to current prices while the street high target price of $369 is a premium of 54.8%.

Citi prefers UPS over FDX

Meanwhile, not all analysts are bullish on FDX stock and earlier this week, Citi said that it prefers UBS over FedEx. “Looking at the stocks, we’ve historically preferred FedEx to UPS given FedEx’s more attractive valuation and upside potential. However, we are upgrading UPS to Buy and moving it ahead of FedEx in our pecking order,” said Citi’s Christian Wetherbee.

He added, “We believe UPS is poised to deliver solid growth in its Domestic segment in 2022 as better cost certainty (particularly on labor) and execution should yield upside vs. modest consensus expectations.” Meanwhile, after the earnings beat, some of the analysts might upwardly revise FDX’s target price.

FedEx stock long term forecast

FedEx is a long-term play on the growing market for e-commerce parcels. The strategic investments made by the company would help it in attracting e-commerce business.

FedEx has a dividend yield of 1.25% which hardly matches even the S&P 500’s paltry yield. However, the valuations for FDX stock seem quite reasonable with an NTM (next-12 months) PE multiple of 11.6x which is below its historical averages. Rival UPS trades at an NTM PE of 17.4x.

With the rise today, FDX stock looks set to bounce above the 50-day SMA (simple moving average). However, the stock would need to rise above the 100-day SMA, which is currently at $248.66 to signal a sustained uptrend. The stock is trading above the 100-day SMA in premarkets and if it can manage to close above the 100-day SMA, it would be a bullish indicator.

Should you buy FedEx stock?

All said FedEx stock has been under pressure amid the labor issues. Next year, these issues should ease even further. The planned price hikes for the next year will also help FDX protect its margin. The stock has come significantly off its 52-week highs. While some of the fall was warranted, considering the near-term earnings compression, the stock fell a little too much. At current levels, FDX stock looks like a good buy.

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