FedEx Corporation (NYSE: FDX)
FedEx is set to report its Q4 fiscal 2020 financial results after the market closes on Tuesday, June 30. Shares of the global shipping powerhouse have jumped 50% since mid-March to outpace its industry and the S&P 500, but they remain beaten down over the last several years as investors worry about competition from the likes of Amazon.
FedEx last quarter pulled its guidance amid the broad global uncertainty that brought the economy to as near a halt as many thought possible.
The coronavirus forced many people to stay and home and try to avoid stores for nearly three months in some parts of the country and the world. This put a heavy demand on e-commerce and saw the digital-channel sales boom at Target TGT, Kroger KR, and many other retail giants.
Despite the growth in e-commerce, FedEx and others have been overwhelmed with holiday season volume, which has raised costs. FedEx recently announced that it was introducing surcharges on some shipments to help offset rising costs and perhaps control the flow of packages during the pandemic.
On top of that, FedEx was unable to drop off packages in bulk to many stores deemed non-essential. Worse still, overall business activity declined.
FedEx faces structural challenges, mostly from Amazon (AMZN)
FedEx stock has fallen over 40% in the last two years as its longer-term earnings outlook plummeted. FDX then shocked investors when it essentially cut ties with Amazon in August 2019. Many on Wall Street thought FDX pulled the plug too early on its relationship.
Amazon continues to invest heavily in its own shipping solutions, including essentially copying the models of FedEx and UPS (UPS) in some ways. Amazon has its own aircraft fleet, its own vans that do last-mile deliveries with Amazon employees, and a huge supply chain network supporting these solutions. Amazon has enormous cash it can use from its core retail and cloud businesses to invest basically however much it wants into more efficient – and cheaper – delivery solutions not only for its own products but for others as well.
This is a structural headwind for both FedEx and UPS because Amazon has shown time and again that when it wants to win in a segment, it will stop at nothing to do so. I think FedEx is going to have a very difficult time competing with Amazon over the long term for this reason.
We are predicting a flat to down earnings report for $FDX, and Iron Butterfly or Iron Condor setup here will pay out well.