Better Days Ahead for Fedex?

Fedex Corp. (FDX) reports fiscal Q2 2022 earnings after Thursday’s closing bell, with analysts looking for a profit of $4.29 per-share on $22.42 billion in revenue. If met, earnings-per-share (EPS) will mark a 12% profit decline compared to the same quarter in 2020. The stock plunged 9.1% in September after missing Q1 estimates by a wide margin and lowering 2022 guidance. It fell another 6% to a 14-month low in October and bounced, filling the post-earnings gap in November.

2022 Labor Market Advantage

The company blamed a “constrained labor market” for the Q1 shortfall, generating a wave of analyst downgrades. Sentiment has not improved since that time, with wage pressures growing throughout the United States and around the world. Concerns about a weak holiday season and  Omicron-induced slowdown are adding to these headwinds, encouraging investors to sit on their hands until the profit landscape becomes more transparent.

Deutsche Bank analyst Amit Mehrotra recommended the stock in a backhanded way at the end of November, noting that rival United Parcel Service Inc. (UPS) faces tough contract talks with the Teamsters union, raising the potential for the first labor stoppage since 1997. He believes Fedex would benefit if that happens, noting “This makes FDX shares more attractive over the next 12-18 months, in our view, given its non-union employee base and a cost structure that better reflects real-time labor inflation.”

Wall Street and Technical Outlook

Wall Street believes that Fedex is undervalued at this time, posting a consensus ‘Strong Buy’ rating based upon 17 ‘Buy’, 4 ‘Hold’, and no ‘Sell’ recommendations. Price targets currently range from a low of $250 to a Street-high $369 while the stock is set to open Thursday’s session nearly $6 below the low target. This dismal placement suggests limited downside after the report but uncertainly is likely to impact price action well into the first quarter of 2022.

Fedex completed a round trip into the 2018 high at 274.66 in October 2020 and broke out, but the uptrend failed after posting an all-time high at 319.90 in May 2021. The stock relinquished more than 30% of its value into October, ahead of a weak bounce that failed to mount 50- or 200-day moving average resistance. This bearish action tells us the downtrend remains in control and likely to keep pressure on the shipping giant in coming months.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.