Scalper1 News
The transportation sector has given an ugly performance this year in spite of a strengthening economy, better job conditions and cheap fuel. The major culprit is the strong dollar, which is eroding the profitability of big transporters. The rough trading is expected to continue for the sector in the months ahead, especially after a disappointing fourth quarter 2015 earnings report from bellwether FedEx (NYSE: FDX ). The courier company lagged our estimates on revenues and earnings and guided lower, dampening investors’ mood. However, the numbers were better than the year-ago quarters. Q4 FedEx Results in Detail Earnings per share climbed 4.7% year over year to $2.66 but missed the Zacks Consensus Estimate by four cents. Revenues rose 2.5% year over year to $12.1 billion but fell shy of our estimate of $12.39 billion owing to negative currency translation and lower fuel surcharges. FedEx’s ongoing three-year cost cutting measures in the FedEx Express unit, which started in late 2012, are largely paying off and are expected to continue doing so in the coming quarters. This profit-improvement plan will continue to boost revenue and profitability. However, a strong dollar and lower fuel surcharges will likely keep on hurting the company’s profitability in fiscal 2016. As a result, the second largest U.S. package delivery company provided fiscal 2016 earnings per share guidance of $10.60-$11.10, the midpoint of which is below the Zacks Consensus Estimate of $10.90. Investors should note that FedEx is in the process of acquiring the Dutch parcel-delivery company TNT Express ( OTCPK:TNTEY ) for €4.4 billion ($4.8 billion). The buyout is expected to close in the first half of calendar year 2016. The acquisition, pending European regulatory approvals, would bolster its global footprint, particularly in the European markets with many untapped nations like the UK and France. The deal would create the third-largest delivery company in Europe after United Parcel Service (NYSE: UPS ) and Deutsche Post ( OTCPK:DPSGY ). Hence, the transaction will give a big boost to the company’s competitive position and future growth story. That being said, FedEX has a solid Growth Style Score of ‘A’ with some flavor of value as it also has a Value Style Score of ‘B’. Further, the stock has a favorable Zacks Rank #3 (Hold) and a solid industry Rank in the top 43% at the time of writing. Market Impact FDX shares dropped as much as 3.3% in yesterday’s trading session following disappointing results on elevated volumes of nearly 2.5 times than the average. This represents the biggest one-day fall so far this year. Given this, many investors may want to tap the beaten down price of FDX by considering either of the following ETFs: iShares Transportation Average ETF (NYSEARCA: IYT ) The ETF tracks the Dow Jones Transportation Average Index, giving investors exposure to the small basket of 20 securities. Out of these, FedEx occupies the top position in the basket with 13.5% of assets. Within the transportation sector, railroad takes the top spot with 46.8% share in the basket while air freight and logistics (30.1%), and airlines (15.2%) round off the top three. The fund has accumulated nearly $870 million in AUM while it sees good trading volume of around 438,000 shares a day. It charges 43 bps in fees per year from investors and lost 0.3% on the day following the earnings results. The product is down 8.3% in the year-to-date time frame and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook. SPDR S&P Transportation ETF (NYSEARCA: XTN ) This fund follows the S&P Transportation Select Industry Index and uses almost an equal weight methodology for each security. Holding 50 stocks with AUM of $399.2 million, FedEx takes the fourth spot with a 2.7% share in the basket. The product is heavily exposed to trucking which accounts for 36.2% of total assets while airlines make up for another one-fourth share. Airfreight & logistics, and railroads account for 22.7% and 11% share, respectively. The fund charges 35 bps in fees per year from investors and trades in a moderate volume of about 83,000 shares a day. XTN was down 0.6% at the close after FedEx earnings were released and 8.5% so far in the year. The fund has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a High risk outlook. Original Post Scalper1 News
Scalper1 News