Range-Bound FedEx Is Moving Higher

FedEx Soars On Guidance, Outlook Capped By Headwinds 

Shares of FedEx (NYSE: FDX) soared in the wake of the Q4 earnings and they look like they will move even higher but the gains will likely be capped at the all-time high. While the company’s guidance for fiscal 2023 is well above expectations the analysts are not so sure they can be reached. Not only are inflationary pressures expected to continue but the tailwinds of COVID-stimulus and pandemic spending are quickly unwinding. 

Morgan Stanley analyst Ravi Shanker stated, "While earnings guidance for 2023 was 6% ahead of expectations, (the) company is seen having (a) very hard time getting there given macro conditions and the pandemic unwind,” while, BMO analysts argued that, "guidance appears dependent on the macro environment remaining somewhat steady. We sense that investors were hoping for a cost reduction program to headline the earnings growth (and they didn’t get one).”

Despite the naysaying, the analysts are still on board with FedEx and expecting to see it move higher. At least 7 of the 19 analysts covering the stock have come out with commentary and they all include a price target increase. The range of the 7 new targets runs from $276 yo $339 compared to the $297 Marketbeat.com consensus estimate and the new targets include a fresh high target. The takeaway here is the analysts see the stock as fairly valued near the $300 which is just below the all-time high. 

FedEx Guidance Outweighs Weak Results 

FedEx had a good quarter but the results were a little light compared to the Marketbeat.com consensus. The company reported $24.4 billion in net revenue for a gain of 8.0% over last year but missed the consensus by $0.160. The miss is slim and offset by strong guidance but lends some credence to the analyst concerns. On a segment basis, the results are even more mixed with FedEx Express and Freight showing improvement and FedEx Ground a decline. Results in the Express and Freight segments were aided by pricing actions and fuel surcharges while Ground declined under the weight of higher costs. Those costs included an increase in purchased capacity and higher wages. 

Moving on to the earrings, the company’s adjusted EPS of $6.87 came in just shy of the consensus but is up 37% versus last year and the prepandemic 4th quarter. The earnings were driven by a robust 570 basis point improvement in Freight margin that is attributed to fuel surcharges. Looking forward, we see fuel surcharges aiding FedEx for the foreseeable future as they will with the entire freight/trucking industry, and that is seen in the guidance. The company is expecting adjusted EPS in the range of $22.50 to $24.50 compared to the consensus of $22.40 but we see downside risk in the outlook. Not only are inventories rising throughout the system but consumer demand is flagging, a combination that could lead to decreased demand from businesses and consumers alike. 

The Technical Outlook: FedEx Moves Higher On Guidance And Buybacks 

Shares of FedEx surged in the wake of the Q4 report and will likely move higher under the influence of guidance and buybacks. The guidance is good despite analysts' misgivings and our own outlook while the buyback is robust. The company says it has $4.1 billion left under the current authorization and intends to use $1.5 billion in the first half of fiscal 2023 (the second half of calendar 2022) or about 0.8% of the market cap. In our view, the stock has confirmed support at the bottom of a range and may move back to the top of the range near $300. The next hurdle for the market will be the $265 level, however, which may provide fierce resistance to higher prices if the Investor Day event fails to impress the market.