FedEx Could Break Out in Coming Months

FedEx Corp. (FDX) reports fiscal Q3 2021 earnings after Thursday’s closing bell, with analysts expecting a profit of $3.23 per-share on $19.9 billion in revenue. If met, earnings-per-share (EPS) will mark a healthy 229% profit increase compared to the same quarter in 2020, which ended just before the March lockdown. The stock fell more than 17% in the weeks following December’s Q1 report, despite beating top and bottom line estimates by wide margins.

Pandemic Beneficiary

The shipping giant ended 2020 with a remarkable 71% return, highlighting the surge in business activity as a result of the pandemic and e-commerce’s rapid share gains. Even so, the rally failed to clear resistance at the 2018 high at 274.66, reversing just above that barrier ahead of the December report. However, the turnaround was perfectly normal because the stock gained ground in a straight line after the lockdown and was exceptionally overbought heading into 2021.

A steep downtrend that started during the 2018 trade war accelerated in 2019 after Amazon.com Inc. (AMZN) pulled its shipping business as part of an initiative to build an in-house delivery system. The e-commerce juggernaut reversed gears in April 2020, choosing to focus on rapidly-growing market share as a result of the pandemic. The stock soared, making up for lost time with a relentless uptrend that finally ran out of gas in December.

Wall Street and Technical Outlook

Wall Street believes FedEx is undervalued, with a ‘Buy’ rating based upon 17 ‘Buy’, 4 ‘Overweight’, 6 ‘Hold’, and 1 ‘Underweight’ recommendation. No analysts are recommending that shareholders close positions. Price targets range from a low of $250 to a Street-high $386 while the stock closed Friday just $20 above the low target. While these numbers confirm the broad-based rotation out of COVID beneficiaries, a breakout appears likely in coming months.

FedEx posted a 7-year low in March 2020 and turned sharply higher, more than tripling in price into year’s end. The subsequent decline found support at the 50-day moving average in January, yielding an extended test at that level, followed by a modest uptick that posted a 2021 high on Friday. Bull cycles are slowly coming around after the correction, potentially completing the handle of a three-year cup and handle breakout pattern.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.