Should You Buy FedEx Stock Before June 23?
Key Points
FedEx recently spun off its freight business.
The stock is heading into earnings with its price at an all-time high.
Challenging macroeconomic conditions may weigh on the business this year.
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Shares of logistics company FedEx (NYSE: FDX) have been soaring in value this year, up 45% entering trading on Tuesday. It recently completed the spin-off of its freight business. The move makes the remaining business leaner, and investors appear to be bullish on the split.
But whether it can continue on its rally may depend heavily on how it does when it reports earnings later this month. Its fourth-quarter earnings call is scheduled for June 23, and that could be a big day for the company in its first earnings report since completing the recent spin-off. Should you buy FedEx stock before then?
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Expectations could be elevated for FedEx
When FedEx last reported earnings in March, it reported a solid 8% revenue growth, with its top line rising to $24 billion for the period ending Feb. 28. Its net income also showed strong 16% growth, climbing to nearly $1.1 billion. Although economic conditions have been challenging due to ongoing trade issues, FedEx's business has remained fairly resilient.
Meanwhile, now that the separation of the freight business is complete, investors may be looking for signs of improved efficiency and profitability in its guidance, which will undoubtedly be of key importance moving forward. Investors may, however, have effectively been pricing in a rosier forecast given the stock's surge this year, and thus, expectations may be high for FedEx as it releases its earnings in a few weeks.
Is FedEx stock a buy before earnings?
Although FedEx has been a hot stock to own this year, it's trading at an all-time high. Its price-to-earnings multiple of 18 isn't all that low and doesn't provide much margin of safety amid rising oil prices, challenging economic conditions, and still plenty of question marks around the conflict in the Middle East. Investors have priced in a lot of optimism into the stock's current valuation, which I don't think is justified. There are challenges and headwinds that could derail the stock's progress in the near term.
At the very least, you may want to take a wait-and-see approach and assess not only the company's performance in the most recent quarter, but also pay attention to what management is saying about the macroeconomic environment, as that could lend clues as to what lies ahead for the business.
FedEx's business remains robust, but at the stock's current valuation, I wouldn't rush to buy it given all the uncertainty in global markets these days.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.
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