On March 15th I previewed FedEx’s (FDX) fiscal Q3 results reported last week (FedEx Q3 Earnings Preview) and offered a fairly downbeat near-term assessment of their ability to print a beat and raise:
Maybe last quarter’s cut to guidance was to a level that is achievable, but when you consider some of the headwinds the company faced in Mid December, they all still exist, slow trade with China given tariffs, weak Europe with Brexit overhang, a strong dollar, except the government shutdown which had not happened yet. I suspect all of the above adversely affected FDX results in the quarter and the lack of clarity on a trade deal with China likely cements further lack of visibility. At an analyst meeting in January, the company largely blamed the Q2 miss on macro conditions.
And the hits keep coming, in February 42 year FDX vet, President/COO Don Bronczek abruptly retired leaving some investors questing who would be next in line to replace founder Fred Smith.
And detailed a near-term bearish trade idea:
TRADE IDEA: FDX ($178.50) BUY APRIL 175 – 155 PUT SPREAD FOR $4
-Buy to open 1 April 175 put for 5.15-Sell to open 1 April 155 put at 1.15
The company offered disappointing guidance and a week later the stock is down a $172 as I write. This $20 spread that is now $3 in the money cost $4 when the stock was $178.50, is now worth about $5.25 for a $1.25 gain. This stock was rejected at prior resistance below $185, and is now sitting on support on an uptrend from the December lows:
At this point, it makes sense to roll these profits to a trade idea that
Action: FDX ($172) Sell to close April 175 – 155 put spread at $5.25 for a $1.25 gain
Trade Idea: FDX ($172) Buy to Open April 170 – 162.50 put spread for $2 (net of gain of prior trade cost 75 cents)
-Buy to open 1 April 170 put for 3.50
-Sell to open 1 April 162.50 put at 1.50
Break-even on April expiration:
Profits of up to 5.50 between 168 and 162.50 with max gain below 162.50
Losses of up to 2 between 168 and 170, max loss of 2 above 170 (real risk vs prior trade is 75 cents)