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FedEx Corporation (FDX) Expects a Record Holiday Season

FedEx Corporation (NYSE: FDX) continued its positive momentum when the company reported strong earnings and sales numbers in its fiscal second quarter. FedEx now appears to be well-positioned for a huge holiday delivery season that could propel its stock even higher in the coming months.

FedEx reported adjusted earnings per share of $3.18 on revenue of $16.3 billion in the second quarter. Both numbers topped consensus analyst expectations of $2.73 and $15.7 billion, respectively.

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FedEx also said a cyber attack on its Dutch TNT Express business was responsible for a 31 cent hit to EPS. Earnings were boosted, however, by $80 million in foreign tax credits in the quarter.

In addition, the company raised its full-year EPS guidance from a previous range of $11.05 to $11.85 to a new range between $12.70 and $13.30. Analysts had been expecting full-year EPS of $12.45.

As the aggressive guidance suggests, FedEx CEO Fred Smith said the company is anticipating “another record-setting holiday shipping season” this year.

Loop Capital Markets analyst Rick Paterson says FedEx Express operating income is the key metric for long-term investors to watch.

“The piece that matters most to us is that management maintained line of sight and reaffirmed its guidance for Express division operating income improvement of $1.2 to 1.5 billion in fiscal 2020 versus fiscal 2017,” Paterson says. “As long as this happens every quarter, we’re happy.”

Paterson says corporate tax cuts could add between $4.40 and $5.50 to FedEx EPS in fiscal 2018. Management expects the tax cuts will produce a stronger economy, more hiring and more aggressive capital expenditures.

However, Bernstein analyst David Vernon remains cautious on FedEx stock and says the tax-cut tailwind could be temporary.

“The stock has run on tax — which is significant — but may not be as enduring if the company reinvests all that lower tax rate in planes or to support not adding peak season surcharges at Ground,” Vernon says. Vernon says FedEx Ground core pricing was encouraging in the second quarter, but FedEx doesn’t seem to be prioritizing residential capacity discipline.

Loop Capital has a “buy” rating and $260 price target for FedEx. Bernstein has a “market perform” rating and $236 target for FDX stock.

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