FedEx (NYSE: FDX) is a Buy Ahead of Earnings

FedEx NYSE: FDX is set to report its Q2 2021 earnings (the period ending November 30) on Thursday. The last time the overnight delivery pioneer reported earnings, three months ago, the stock soared nearly 7% the next day on the open.

FedEx blew away expectations, beating by 81% on the bottom line and 10% on the top line. Revenue increased 13.3% yoy and earnings soared 59.7% yoy.

Expectations are heightened this quarter, with analysts expected $19.4 billion in revenue (up 12% yoy) and $3.94 in EPS (up 57% yoy). I think these estimates are too conservative and a beat is in the cards for FedEx.

But That’s Not the Reason Why FedEx is a Buy Ahead of Earnings

Yes, I think FedEx is going to beat, but I also think that a Q2 2021 beat is already priced into the shares. For two reasons:

1. The market won’t get caught off-guard twice in such a short timeframe: FedEx has proven that it’s absolutely, positively a part of the new normal and nothing has really changed since the previous quarter. In fact, conditions have only gotten more favorable for e-commerce companies – and by extension, FedEx. With coronavirus cases peaking and the weather getting colder, FedEx’s numbers should be even better than last quarter. The thing is, everyone and their mother knows that and the whisper numbers are almost certainly high.
2. If you needed further evidence that a big beat is priced into FedEx shares, look no further than the current share price. FedEx is trading just shy of all-time highs, and more than 14% higher than where it opened after last quarter’s beat.

Here’s the Reason Why FedEx is a Buy Ahead of Earnings

 FedEx is a buy ahead of earnings not because of what it’s done during the pandemic, which will probably end soon, but because of its post-pandemic outlook.

FedEx shares dipped nearly 6% on November 9, when the Pfizer NYSE: PFE vaccine news came out. Investors feared that once the new-normal turned into the old-normal, FedEx’s business would fall off. That concern was misplaced, however, as most of the e-commerce gains are here to stay.

Furthermore, it’s not as if FedEx has been resting on its laurels while its business thrived during the pandemic. Au contraire.

A couple of weeks ago, FedEx announced that it agreed to acquire ShopRunner, an e-commerce platform that connects customers with brands. I love this deal because ShopRunner, with its pre-purchase capabilities, is a perfect complement for FedEx, with its post-purchase capabilities. The deal also helps FedEx in its battle against Amazon NASDAQ: AMZN – which turned from friend to foe last year.

Then, there’s the vaccine. Yes, it was (slightly) bad news for FedEx’s business overall. But the vaccine itself will be delivered by, you guessed it, FedEx.

The shipping giant is once again at the forefront of delivery innovation, with temperature-control, real-time monitoring, and a healthcare team set to ensure the safe and efficient delivery of the delicate vaccine doses.

The Street Loves FedEx

 FedEx received several upgrades from some of the biggest names on Wall Street last week. There was:

• UBS NYSE: UBS upping its price target from $320 to $380.
• JP Morgan NYSE: JPM adjusting its price target from $298 to $356.
• Goldman Sachs NYSE: GS raising its price target from $297 to $345.
• Wells Fargo NYSE: WFC boosting its price target from $286 to $331.

The Wells Fargo price target – the lowest among them – still gives FedEx shares more than 14% upside from here.

The increasing price targets make sense when you consider the extremely reasonable valuation of FedEx shares: .99x forward sales and 17.9x forward earnings.

Yes, comps are going to be a bit tough for FedEx in the first year with a widely distributed vaccine, but you really can’t go wrong with that type of value on a growing, competently-managed company.

The Final Word

To reiterate: a strong Q2 2021 is likely already priced into FedEx shares.

But the potential for strong guidance and the appealing long-term value make FedEx a buy ahead of earnings.

 Pandemic or no pandemic, vaccine or no vaccine, FedEx is going to thrive.