Will FedEx Deliver Strong Earnings Next Week?

It may seem that delivery trucks have been frequenting our neighborhoods more often lately—and they probably have. From the onset of the pandemic, consumers' click-happy fingers have been sounding the bell for the hasty delivery of their online purchases. The accelerating trend toward e-commerce has been a major force behind the recent performance of FedEx (NYSE:FDX) stock.

With the company scheduled to report fiscal 2021 first-quarter earnings next week, investors will be looking for confirmation that this trend remains strong. It will need to be for the stock to continue its sharp recovery. Last quarter with many corporations closed or operating in limited capacities, business-to-business shipping volumes were muted, forcing FedEx to lean on the boon in domestic e-commerce. Can e-commerce save the day again?

What does the economic data suggest for FedEx?

According to the U.S. Department of Commerce, consumers forked over more than $200 billion to online retailers during the second quarter. This accounted for over 20% of all consumer spending, which was the largest percentage in history.

And while we don't yet know the e-commerce data for the third quarter, chances are it was solid. The Census Bureau reported that advance monthly sales for retail and food services increased 1.2% in July to $536 billion. If one-fifth of this was again derived from e-commerce, expect another strong quarter for FedEx.

Can FedEx Stock Continue to Rise?

After dipping below the $100 mark less than six months ago, FedEx stock is inching closer to its January 2018 all-time intraday high of $274.66. Riding a five-month winning streak into next week's earnings, the company has built up some considerable momentum.

Technical traders will note that on August 31^st, FedEx flashed a bullish long-term "Know Sure Thing", or KST, signal. This oscillator, which is a measure of a stock's momentum, occurred when FedEx traded at $219.84. With the stock trading around $226 today, this suggests the runway for the upward trend is long.

In hindsight, it didn't make much sense for a stock like FedEx to dive so far given the online shopping tailwind—but sometimes in a bear market all stocks sink with the ship.

FedEx has adapted well to rapidly increasing e-commerce demand by offering year-round, seven-day-per-week residential FedEx Ground delivery. Customer pick up times have been extended via the FedEx Extra Hours Service. And partnerships with retailers like Dollar General and Walgreens have further enhanced convenience and the overall value proposition for customers.

Will FedEx Beat Earnings?

With a couple of strong post-COVID e-commerce months under its belt, FedEx went on to beat the $16.9 million consensus revenue estimate for the period ended May 31^st by 3.5%. The stock gapped up nearly 12% on the day of the fourth-quarter report.

Will it be déjà vu this quarter? It certainly wouldn't be surprising. Aside from the online shopping catalyst, FedEx may have some additional packages with which to surprise investors.

The company's pricing strategy has evolved this year to match economic conditions. Shipping rates for FedEx Express, FedEx Ground, and FedEx Freight have increased. Surcharges related to COVID-19 have also been implemented.

These higher costs don't appear to be slowing consumers down. People don't seem to notice (or they at least understand) the higher prices because they are getting their deliveries sooner than they used to. They have embraced the 'new norm' in shipping rates.

In the corporate channel, many businesses have resumed operations this summer. Pent up demand for goods and services in many industries could spur a greater than expected first-quarter contribution from traditional B2B activity and B2B e-commerce.

What's Ahead for FedEx Investors?

Looking ahead to the key holiday shopping season, there's a lot for investors to like. It seems likely that fewer shoppers will want to go to crowded shopping centers and strip malls—especially if pandemic conditions worsen. Many people will stay content shopping from the comfort of home and continuing to rely on FedEx.

And this would suit FedEx just fine. Last month the company joined the U.S. Postal Service and UPS in raising its rates for the holiday season. It will be adding surcharges of $1 to $5 for deliveries made between November 2^nd and January 17^th to adjust (and capitalize) on peak volumes.

Bottom line, FedEx should continue to be a beneficiary of the strong trend in e-commerce for some time. Heightened demand has given the company greater pricing power—and this is an attractive combination. Although the higher demand has pressured its package-handling capacity, FedEx has been able to not just keep up, but thrive in this environment.

Expect FedEx to deliver another strong quarter next week and go on to benefit from potentially record-breaking residential volumes during the holidays. Analysts are forecasting $17.5 billion in sales and EPS of $2.49 when the company reports after the close on September 15^th. Barring a weaker than expected outlook, there's a good chance FedEx shares gap up again and continue to head down the road toward a fresh record high.