There were very few winners this holiday season but FedEx was one of them. The company posted disappointing results for Q3 in the middle of December but Q4 should be a blowout quarter.
I wanted to add a couple long positions this weekend but the impending earnings cycle knocked out about 85% of the potential plays. Nearly every stock reports between now and Feb-15th. The rest had crummy charts.
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FDX - FedEx - Company Profile
FedEx Corporation provides transportation, e-commerce, and business services in the United States and internationally. The company's FedEx Express segment provides various shipping services for the delivery of packages and freight; international trade services specializing in customs brokerage, and ocean and air freight forwarding services; assistance with the customs-trade partnership against terrorism program; and customs clearance services, as well as an information tool that allows customers to track and manage imports. This segment also publishes customs duty and tax information; and offers critical inventory logistics, transportation management, and temperature-controlled transportation services, as well as international express transportation, small-package ground delivery, and freight transportation services. Its FedEx Ground segment provides business and residential money-back guaranteed ground package delivery services; and consolidates and delivers low-weight and less time-sensitive business-to-consumer packages, as well as offers third-party logistics services. The company's FedEx Freight segment offers less-than-truckload freight, and freight-shipping services. As of May 31, 2016, this segment operated approximately 65,000 vehicles and trailers from a network of approximately 370 service centers. Its FedEx Services segment provides sale, marketing, information technology, communication, customer, technical support, billing and collection, and other back-office support services; FedEx Mobile, a suite of solutions to track packages, create shipping labels, view account-specific rate quotes, and access drop-off location information; access to copying and digital printing through retail and Web-based platforms, signs and graphics, professional finishing, computer rentals, and ground shipping and time-definite express shipping services; and packing services, supplies, and boxes. Company description from FinViz.com.
On December 21st, FDX reported earnings of $2.80 that missed estimates for $2.91. Revenue rose 20% to $14.93 billion and beat estimates for $14.91 billion. The problem with the earnings was a large amount of spending to build new distribution hubs and improve others ahead of the holiday season.
FedEx said they were in the midst of a record-breaking holiday shipping season and package volume was expected to rise 10% or more over 2015. They raised full year guidance from $10.85-$11.35 to $10.95-$11.45. The CEO said the recent improvements would allow them to ship more packages at a lower cost with improved delivery.
During the holiday shopping season my family spends a lot of money on Amazon for gifts for our extended family. Because I am a Prime member, others in the family use my account to make purchases and everything comes to my house. In the 2015 season UPS delivered to my house almost every single day from Amazon. I might get a box from USPS once a week and FedEx maybe once a week.
This year UPS only came twice between Thanksgiving and Christmas. Fedex came 3-4 days a week and USPS 3-4 days a week. That suggests FedEx gained a significant amount of market share from Amazon and moved a lot more packages than UPS. Hopefully this added to their profits on the improved shipping network.
Earnings are March 21st.
Because their earnings are expected to be good, the March option prices are out of sight at $7.50 for a $195 call with FDX at $190. We have to use the February options to get a reasonable price. Given the potential for market volatility between now and expiration, we do not want to spend a lot of money on premium.
I am putting an entry trigger on the position just in case the market decides to turn negative on Monday.
With a FDX trade at $191.85
Buy Feb $195 call, currently $3.25, initial stop loss $186.65
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