FDX Stock: 3 Reasons Why FedEx Corporation Could Soar in 2016

FDX StockPackage delivery companies don’t sound that exciting, but when they offer you double-digit returns in a single day, you should pay attention. On Thursday, March 17, FedEx Corporation (NYSE:FDX) stock surged more than 10% by around noon. The neat part is that this could be the start of a new rally.

Major Bullish Crossover in FDX Stock

For the most part, in the last 12 months, sentiment surrounding FDX stock hasn’t really been that bullish. As Amazon.com, Inc. (NASDAQ:AMZN) started to build its own logistics network, the thought of competing against the e-commerce giant turned many investors away from the delivery company.

The good news is that with a great earnings report, FedEx stock might finally be out of the doldrums. On Thursday, FDX stock crossed above its 200-day moving average of $152.90. Trading at $159.35 apiece, shares of FedEx have surged 10.5% since the company released its earnings.

The bullish crossover could be the sign of a major trend reversal. This means that going forward, we might be able to see a bull run in FDX stock.

Solid Growth in FedEx Ground

FedEx Ground was originally designed to be a lower-cost competitor to United Parcel Service, Inc. (NYSE:UPS). Right now, the subsidiary has become a major growth-driver for FedEx and its competitiveness could lead to further revenue growth in the future.

In an investor presentation, the company outlined FedEx Ground’s key advantage—speed. Nearly 30% of FedEx Ground’s lanes are faster than those of UPS Ground, while 67% of its lanes are as fast as UPS. Balance everything out and FedEx Ground has a net advantage of 26.7% over its archrival. (Source: “Investor Presentation,” FedEx Corporation, March 16, 2016.)

The speed advantage is bringing more business to FedEx Ground. In its most recent fiscal quarter, FedEx Ground’s volume increased 11% year-over-year. The segment’s revenue surged 30% year-over-year to $4.41 billion. (Source: “FedEx Corp. Reports Strong Adjusted Third Quarter Earnings,” FedEx Corporation, March 16, 2016.)

FDX FedEx corp

Chart courtesy of www.StockCharts.com

Profit Improvement Program

Other than the obvious earnings beat, the news that sent FedEx stock through the roof was its forward guidance. The company said it expects full-year fiscal 2016 earnings to come in between $10.70 and $10.90 per share, which would represent a 20%–22% increase over last year. Note that the guidance range is also better than Wall Street’s earnings forecast of $10.52 per share.

But how can the company achieve such growth? Well, as it turns out, FedEx is pursing a number of profit improvement initiatives. Most notable is the profit improvement program at FedEx Express. The program was announced in 2012 to improve revenue quality, increase productivity, and constrain expenses. (Source: “FedEx CEO Fred Smith on Q3 2016 Results-Earnings Call Transcript,” Seeking Alpha, March 16, 2016.)

On the SG&A side, FedEx Express is working on the absolute and permanent reduction in overall cost structure. On its air fleet side, the current fiscal year will benefit from cost savings from Boeing “767” aircraft deliveries. The trip cost of a Boeing 767 shows a 30% improvement.

In the U.S., the company is implementing new technology and processes, consolidating facilities and stations, and working on improved efficiency for its aircraft and vehicle fleets. Internationally, FedEx International Priority and FedEx International First could be future growth-drivers.

The Bottom Line on FDX Stock

Of course, by building its own logistics network, Amazon might be relying less on FedEx’s service. That concern could still be a drag to FDX stock. But the package delivery company still has a lot going for it, and the outlook for FDX stock is still bright.

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