Chart of the Day – Distributors’ Duel, $FDX vs. $UPS

by Enis September 16, 2014 10:59 am • Commentary

Fedex reports earnings tomorrow morning, and here is a brief overview of the event:

Event:  FDX reports its fiscal Q1 earnings tomorrow morning prior to the open.  The options market is implying about a 3.25% one day move, which is just about in line with both the 4 quarter and 8 quarter average of 3%.

Sentiment:  Wall Street analysts are mixed on the stock, with 14 Buys, 16 Holds and 1 Sell.  The analysts’ average 12 month price target is around $154, or about 6% higher than the current level.  Short interest is at only 1.5% of the float.  FDX is up 7% year-to-date and is trading within 1% of its all-time high from July.

The stock made a new all-time high above $155 in July, and it has stalled since then.  However, FDX has been a huge winner over the past year, rising around 40% since last September:

FDX daily chart, 200 day ma in yellow, courtesy of Bloomberg
FDX daily chart, 50 day ma in pink, 200 day ma in yellow, courtesy of Bloomberg

FDX has no resistance above the $155.31 July high.  Meanwhile, the $145 level is major support, as that was the high in late Dec / early Jan, and the high in late May / early June before the June earnings breakout.  It acted as support on the early August weakness.  The rising 200 day moving average also comes into play around $141.50.

FDX’s strength in the past year has been even more impressive when contrasted with its larger peer, UPS.  Here is the 1 year chart overlay of the two stocks (note the different axes on the right):

FDX in red, UPS in green, daily charts, courtesy of Bloomberg
FDX in red, UPS in green, daily charts, courtesy of Bloomberg

FDX has been the more volatile stock in percentage terms, rising a much greater percentage than UPS, but the overall correlation of the two stocks was quite close until UPS had a disappointing late July earnings report.  Since then, the transport stalwarts have diverged.

On a valuation vs. growth basis, UPS still looks expensive to FDX (21x P/E for 12% expected annual EPS growth in UPS, vs. 23x P/E for 24% expected EPS growth in FDX), but FDX has the historically more volatile business and higher leverage.  In that regard, guidance will be crucial for FDX, since analysts have high expectations for the next few quarters.  If FDX puts up another quarter like the June report, it’s likely another breakout to new highs.  If it puts up a dud like UPS, then a test of the $145 level is in the cards.

We still have a UPS fly that is a winner but at risk if FDX pulls it higher tomorrow. We’ll update on the site if we make any moves on the position before the close.