Is It Time To Short FedEx Again???
Two months ago, I wrote a post titled,
FedEx reported earnings that beat on revenue, but missed profit estimates. During the earnings call, FedEx decreased their 2019 numbers because of the ongoing US-China tariff war, which has already affected 10% of its businesses in China. On that news FedEx sold off hard.
Morgan Stanley analyst Ravi Shanker notes that Amazon (AMZN), which currently is leasing 40 cargo jets, could eventually have 100 planes running and estimates that the planned Amazon Air routes could overlap with more than two-thirds of the volume flown by UPS and FedEx.
That's bad news for both companies since Shanker said that UPS and FedEx each generate nearly 20% of their overall revenue from US air deliveries.
However, with the economy inevitably slowing down and pressure by Amazon Air, the chart suggests a $150 target is in the future for FedEx.
Amazon is in the process of building a $1.5 billion airplane hub in Kentucky. They also have 100 trucks in their fleet (seems like I'm seeing their trucks on the road every day). They have also ordered about 10,000 vans to deliver packages from their distributions centers directly to your home, known as the last mile. As Amazon continues to take over more of the delivery of packages to your home, it could mean a savings of $3 billion dollars.
So how has and how will all this impact FedEx? Price fell to a low of $151.18 in December before recovering all the way to $190.
Shares of FedEx Corp. FDX, -2.51% sank 3.0% and United Parcel Service Inc.UPS, -0.83% shed 1.3% in midday trade Friday, bucking the gains seen in the broader market, after fellow transportation company XPO Logisitics Inc.XPO, -12.73% said its largest customer is curtailing about two-thirds of its postal injection business. XPO declined to comment on who the customer was, but J.P. Morgan analyst Brian Ossenbeck said the loss of business is likely Amazon.com Inc. AMZN, -0.91% taking capacity in-house. Ossenbeck said he could see FedEx and UPS shares "react negatively on the implication that Amazon is reducing third party transportation exposure.""
FedEx price did pull back into a daily demand zone, so one possible scenario is a break of $172, a pull back, than a drop to the weekly demand zone at $143.
Personally, I would like to see price go higher at least filling the gap. I don't like the probability of this trade set-up because price didn't break the weekly demand zone at $143 first. The best way to play this set-up is to monitor the S&P 500 ETF, SPY. If the SPY starts to break down, the probability of this trade working will increase.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
I hadn’t thought about the Amazon effect on FedEx and UPS. I think you’re right to point out the potential opportunity to short.
FedEx stated they aren't worried about Amazon, Amazon is a small portion of their sales, but I think they are lying to themselves.
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The potential for Amazon to even take from other clients as well could be in the works as they seek to optimize and scale the business and I highly doubt this is priced in the price which could spell trouble for these transports. Add the risk of a general slowdown and you could have a perfect storm.
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