FedEx Stock Puts Buyers Brace for a Rare Earnings Retreat

FDX stock has a history of positive earnings reactions

Dec 18, 2017 at 3:48 PM
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FedEx Corporation (NYSE:FDX) is slated to take its late-season turn in the earnings confessional after tomorrow's close. The delivery giant has a history of positive post-earnings reactions, with the shares settling higher the next day in six of the past eight quarters, and averaging a gain of 4.4%. This time around, the options market is pricing in a single-session swing of 5.1% for Wednesday's trading, regardless of direction, based on at-the-money implied volatility data.

Based on FedEx stock's current perch at $241.80, another move of this magnitude to the north would put it in uncharted territory. However, record highs are nothing new for the stock, which topped out at an all-time peak of $243.75 earlier. More broadly, FDX has tacked on 29% year-to-date -- pacing for its best annual return since 2013, when the stock surged 56.8%.

Helping the shares recently has been a burst of buying power from shorts. Since mid-October, short interest on FDX has dropped 35.3% to 3.41 million shares -- the fewest since January. Based on the stock's average pace of trading, it would take roughly 2.3 days to cover the remaining bearish bets.

Analysts, meanwhile, are mostly upbeat toward FedEx stock, with 14 out of 19 maintaining a "buy" or better rating, and not a single "sell" to be found. However, another post-earnings pop could have more brokerages following in the footsteps of Cowen and Company, which raised its FDX price target to $280 from $240 earlier. By comparison, the average 12-month price target stands at $245.42.

In the options pits, however, today's traders are expressing some rare skepticism toward the equity, with puts trading at two times the average intraday pace. The January 2018 230-strike put is FedEx's most active option, and it's possible new positions are being purchased here. If this is the case, speculators expect FDX to sink below the strike by January options expiration. Given the security's impressive technical backdrop, though, this could be indicative of shareholders initiating a pre-earnings options hedge.

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