FedEx can charge higher fees when demand strengthens, thanks to the duopoly it shares with United Parcel Service. That should add up to a strong earnings report this week.
Massive demand for shipping—even as companies charge more for their products due to supply constraints—has allowed FedEx (ticker: FDX) to hike its prices without added expenses, explains Rick Patterson, an analyst at Loop Capital Markets. That helps drive profit margins, which are expected to expand to 8.3% in 2022 from 7.7% in 2021, according to FactSet data.
Investors will get a chance to put all that to the test on June 24, whenFedEx reports earnings. The stock has fallen about 6% in the past eight trading sessions, following UPS’s (UPS) disappointing investor day on June 9. Yet Big Brown said pricing is strong and its operating profit margins should rise for the coming two years. That’s essentially what Patterson expects for FedEx.
The overall health of the parcel shipping business is seen in analyst estimates. For its fiscal fourth quarter, FedEx is expected to report a profit of $4.98 a share, up from $2.53 a year ago, on sales of $21.5 billion, up from $17.4 billion.
Its guidance for fiscal 2022 will be more important, explains Citigroup analyst Christian Wetherbee. He sees FedEx forecasting earnings of as much as $22 a share, above the consensus for $20.39. “We expect FedEx to be more vocal about the pricing opportunity in parcel and see a path toward $25 in EPS, which supports our long-term bull case of $550,” he writes.
A big beat and strong guidance will probably be needed to move the stock higher. Shares, which closed at $285.32 on Friday, have gone nowhere since December. Yet they trade at under 14 times calendar-year 2022 estimated earnings, below UPS’s 17 times.
With the stock trading like that, perhaps investors are worried about nothing. If FedEx tops estimates, don’t be surprised if its stock delivers too.