FedEx shares moved higher Monday, a day before its earnings report.
The stock, along with main competitor UPS, has rallied so far this year as investors have bet on increased e-commerce business during the coronavirus pandemic. FedEx shares are up 55% in 2020, while UPS has risen 37%. UPS was up nearly up 1% on Monday.
Steve Chiavarone, portfolio manager at Federated Hermes, said both should benefit from an economy in recovery.
“The economy has proved to be resilient. We’re bouncing back, the recession is over, the recovery is taking hold,” Chiavarone told CNBC’s “Trading Nation” on Friday. “The rise of e-commerce which we expect to continue and the fact that the economy has exited recession and it’s in recovery, it’s going to be good for deliveries in general, and it’s going to be specifically good for the businesses of FedEx and UPS.”
FedEx reported earnings well above expectations for its fourth quarter ended in May. Profit of $2.53 a share was down 50% from a year earlier, but topped estimates of $1.52 a share.
For the three months to August, analysts surveyed by FactSet anticipate $2.67 a share in profit, down from $3.05 last year. Sales are expected to rise by 3% to $17.55 billion.
“The next question is can these companies harness technology in order to drive down costs so that as they’re making more of these business-to-consumer deliveries, they can do so with higher and higher margins. If they can, then I think there’s a lot of runway for this industry,” said Chiavarone.
Craig Johnson, chief market technician at Piper Sandler, agrees that both can be winners – but he’d give an edge to FedEx.
“I made a ratio chart of FedEx divided by UPS and you can see over the last month that UPS has been sort of lagging FedEx, and when I look at the chart of UPS, it’s very extended. A lot of the good news is already priced in. You don’t have that with FedEx,” Johnson said during the same “Trading Nation” segment.
FedEx has risen 7% so far this month, while UPS has fallen 2%.
“FedEx looks like a great downtrend reversal. it looks like we’re setting ourselves up to retest those old highs back in 2018 at around $260-$265. So heading into the earnings print, I’d be a buyer of FedEx and playing that trend of the reopening trade,” said Johnson.