FedEx Is A Buy Going Into Earnings

Key Points

• FedEx analysts are upping their targets ahead of CQ4 earnings. 
• United Parcel foreshadowed a decent but not a strong quarter. 
• Analyst estimates are low and have set FedEx up to outperform. 

Shares of FedEx NYSE: FDX opened the week with losses, but this is an opportunity for investors with Q3 earnings due out later in the week. The move is driven by the budding financial crisis centered on Silicon Valley Bank, which has little to do with FedEx. In the case of FedEx, the analysts have been raising their price targets over the past few weeks and have this stock set up to outperform its consensus expectations and spark a rebound in the price action.

The latest is an increased price target from BMO, the 9th consecutive positive development in the analysts' activity in the last 6 weeks. The consensus of these targets is just above $227 compared to the consensus of $210, which has begun to move higher again. 

United Parcel Service Reaffirms, FedEx Bar Low

United Parcel Service NYSE: UPS foreshadowed a relatively strong quarter for FedEx when it reported last month. UPS revenue fell low single digits compared to last year and missed the analyst consensus estimate by a very slim margin, but the margin and bottom line earnings were more impressive.

The company’s earnings not only grew compared to last year but outpaced the consensus and suggested similar strengths for FedEx. Regarding the year, UPS came out a few weeks later to reaffirm the full-year guidance calling for another slim contraction in revenue but for results to fall in a range bracketing the consensus. 

FedEx analysts are not expecting results even as good as UPS, which has the company set up to outperform. The Marketbeat.com consensus for revenue decline is near -4.0% or almost double the contraction posted by UPS, with earnings also contracting.

FedEx earnings are expected to contract by 40% compared to UPS growth, where the real opportunity for strength lies. Outperforming on the bottom line could get this stock moving higher and increase the safety of the reliable dividend. 

“The FedEx team moved with urgency to make rapid progress on our ongoing transformation while navigating a weaker demand environment,” said Raj Subramaniam, FedEx Corp. president and chief executive officer, in the Q2 earnings report. “Our earnings exceeded our expectations in the second quarter, driven by the execution and acceleration of our aggressive cost reduction plans. At the same time, we continue to focus on delivering excellent service for our customers.”

FedEx Dividend Safe And Growing 

Regardless of the opportunity to outperform, FedEx’s dividend is safe and reliable for income investors. The payout is market-beating at 2.3% and comes with a relatively low valuation of 15X which aligns with the broad market S&P 500 average. The company is paying only 35% of the 2023 earnings consensus and has a history of robust increases. The last was worth double-digits; the next is due with the upcoming declaration. The next dividend declaration is due in mid-May 2023. 

The chart of FedEx shares is promising. The market for FDX pulled back along with the broad market but is finding support at the 150-day moving average. This long-term moving average may provide solid support over the next few days. If the company turns in a good report, it may spark a rebound that moves the market sideways within the new range. An excellent report may get it to complete the reversal and move higher, but that may be too much to hope for given the rise of market fear related to the SVB collapse.