It may be time to sell FedEx
The stock has soared by 76% over the past 2 years and is testing long-term resistance levels.
By Neal Rau
FedEx (FDX) shares have had a great year so far, and the company stands to benefit from the boost in online sales this holiday season.
Shoppers are hunting for bargains and hoping to find them while avoiding crowded shopping malls, so it's easy to understand why so many analysts have optimistic forecasts for online retail sales, but is it too late to buy shares of the company?
Post-earnings release dips have proven to be buying opportunities in FedEx. When the company reported in mid-June, shares initially jumped to $104, but following the report the stock quickly sold off as the revenue miss and poor guidance led to profit taking.
The stock fell to its 200-day moving average, around $95, in late June but held that key support level. Now, based on the real-time trading report published by Stock Traders Daily, FDX is testing long-term resistance.
Last quarter FedEx delivered, despite facing headwinds of a tough air-freight market, unfavorable fuel price movements, and one fewer operating day compared to the same quarter a year earlier.
The company was able to improve margins in its express division while accelerating volume growth in its ground segment. FedEx reiterated its fiscal year 2014 guidance of 7% to 13% growth in EPS over the previous year, in line with its previous estimates.
Here are recent quarterly results from the company's divisions:
Express: Revenue of $6.61 billion, down slightly from last year's $6.63 billion. Operating income of $236 million, up 14% from $207 million a year ago and operating margin of 3.6%, up from 3.1% the previous year.
Ground: Revenue of $2.73 billion, up 11% from last year's $2.46 billion and operating income of $468 million, up 5% from $445 million a year ago. Operating margin of 17.1%, down from 18.1% the previous year.
Freight: Revenue of $1.42 billion, up 2% from last year's $1.40 billion. Operating income of $91 million was up 1% from $90 million a year ago. Operating margin of 6.4%, were unchanged from 6.4% the previous year.
The stock dropped about 4% over the few weeks following the company's Sept. 18 report. However, shares rallied 27% over the next two months following that post-earnings dip. Turns out billionaire investors George Soros and John Paulson joined Daniel Loeb’s Third Point LLC and took large positions at the end of the third quarter in FedEx Corp.
Soros Fund Management LLC bought 1.52 million shares valued at $173 million at the end of the third quarter, according to a regulatory filing this week. (Cost $113)
Paulson & Co. disclosed a new stake of 646,800 shares valued at $73.8 million. (Cost $114)
Third Point reported a holding of 2 million FedEx shares, valued at $228.2 million. (Cost $114)
Sometimes, when hedge-fund managers take large stakes in companies, they seek material changes. However, these managers will have to confront a strong-willed CEO in Fred Smith, who already has his company trading at all-time highs. Smith was optimistic about the holiday season when he was interviewed on CNBC on Nov. 15.
"We project our peak day to be Cyber Monday," Smith said. "The peak shopping day is a little different this year because the time is compressed between Thanksgiving and Christmas." We will soon officially find out if that is true.
Smith predicted a strong holiday season for his company, with 10% to 11% growth in shipments to 22 million on Cyber Monday. He added that the company plans to make 85 million shipments that week, about a 13% increase from the past year. However, he was not as optimistic on the economy.
"The economy is not strong," Smith said. "It is not strong because we don't have pro-growth policies in terms of taxes and trade and the centerpiece of that is reforming the tax code to incentive more business investment."
FedEx shares have returned 76% over the last two years, while United Parcel Service (UPS) is up 50%, C.H. Robinson Worldwide (CHRW) lost 11% and Expeditors International of Washington (EXPD) gained 6%.
FedEx gives its next quarterly report on Dec. 18 before the market open. The smart money will be watching the price of the stock, which is up over 50% this year. The large positions taken recently by hedge funds are sitting on better than 20% profits right now, so if these fund managers anticipate any weakness in the coming quarter, they could look to take profits. Investors who chase the stock at resistance might find themselves behind the curve.
In the end, price is what makes us money, and according to the Stock Traders Daily real-time trading report, FedEx is testing long-term resistance. We are sellers near resistance, and if resistance holds, we would expect shares to move lower and eventually test support. Based on the real-time trading report published by Stock Traders Daily, FDX is a sell/short at resistance, with risk controls in place if resistance breaks higher.
Stock Traders Daily has been providing comprehensive market analysis, and correlated trading strategies since January 2000, which was the virtual peak of the Internet Bubble. Our objective is to provide strategies capable of making money in any market environment, and we have been doing that since inception.
Copyright © 2014 Microsoft. All rights reserved.
As geopolitical tensions threaten to spin out of control, investors are wondering how best to position their portfolios for the global turmoil.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.