Event: FDX reports its fiscal Q1 earnings on September 18th before the close. The options market is implying about a 4% one day move, which is above the 4 qtr avg of about 3%, but slightly below the 8 qtr avg of about 4.5%.
Sentiment: Wall Street analysts are generally positive on the stock, with 22 Buys, 10 Holds and 2 Sells, with an average 12 month price target of around $115. Short interest is around 2%.
Options Open Interest: Open interest is skewed to puts by a ratio of almost 1.5 to 1. However, much of that put open interest is at much lower strikes that was traded as protection many months ago. The Sept 110 call is the line with the most open interest in the near-term, with over 8k of open interest.
Price Action / Technicals: FDX’s daily chart is a messy affair. The stock has had 2 large gap downs on its past 2 earnings results (circled in red). Yet, the stock had an impulsive move higher on massive volume (lower panel) in July after rumors that Ackman’s new stock fund was focused on FDX (circled in green):[caption id="attachment_30295" align="alignnone" width="600"] Daily chart of FDX, volume lower panel, 200 day ma in black, Courtesy of Bloomberg[/caption]
Funnily enough, the stock fund was actually targeting APD, but the stock simply continued higher from there anyways. The August high at $113.34 is the upside level to watch in the stock. On the downside, the September low is $106.38, and the rising 200 day moving average is at 100.65.
Fundamentals: The bear case is fairly well known at this point: weak macro backdrop, high oil prices and depressed high margin airfreight volumes, all set against the backdrop of an ongoing restructuring. The stock is not cheap trading at 17x next years expected earnings, which analyst see growing 16% next year which is slightly expensive to the broad market, but a tad cheaper compared to peer UPS, with slightly better expected growth. At this point a down-tick in global growth expectations would likely overshadow near term cost cutting initiatives.
Volatility: 30 day Implied vol into earnings has topped out near 30 the last two times. Actual vol is low going inot this particular event as the stock has been sort of range bound over the past month.
September vol, which expires this week is about 20 points higher than October at 46 to 26 respectively. Expect Oct vol to come into about 20 immediately following the report/
Trades: Stay tuned for our thoughts on potential trade structures that we’ll be posting ahead of next week’s event.