FedEx shares rose by 5.4% in the last trading session, ending at $353.43, with trading volume higher than usual. This increase is part of a 12.7% gain over the past four weeks.
The rise in shares followed an upgrade by an analyst to “Outperform,” with a target price of $427. This upgrade was based on FedEx’s appealing valuation ahead of the planned spinoff of FedEx Freight, suggesting strong growth potential.
FedEx’s upcoming report is expected to show quarterly earnings of $4.06 per share, which is a 10% decrease from last year. Revenues are projected to be $23.46 billion, a 5.9% increase compared to the same time last year.
Research indicates a strong relationship between changes in earnings estimates and short-term stock price movements. The consensus EPS estimate for FedEx has been raised by 0.9% in the last 30 days, which could lead to further price increases.
In the Zacks Transportation – Air Freight and Cargo sector, GXO Logistics experienced a 0.5% gain, closing at $57.22. Over the last month, GXO returned 4.1%, but its consensus EPS estimate dropped by 3.2% to $0.83, reflecting a 17% decline from the previous year.
Given the strong momentum in FedEx shares, we should explore bullish options strategies to take advantage of the upward trend toward the $427 price target. Buying call options that expire after the upcoming earnings report could be a smart way to benefit from this expected strength. The increased trading volume indicates institutional interest, which often leads to further gains.
The planned spinoff of FedEx Freight is a significant factor for growth, and the recent positive earnings revision shows rising confidence. Ahead of the earnings announcement, we can expect implied volatility to rise, which would increase the price of options. Thus, establishing bullish positions now, such as bull call spreads, could be a good move before that volatility is fully reflected in prices.
This positive outlook for FedEx is supported by the broader economic trends expected through 2025. According to IATA figures, global air cargo demand grew by over 1.8% last year, indicating a steady recovery in global trade. This trend suggests that FedEx’s projected revenue increase is achievable.
On the other hand, GXO Logistics presents a less favorable picture, with declining earnings revisions and a weaker outlook compared to last year. Its modest 4.1% gain last month lags behind FedEx’s performance, highlighting a divergence in the industry. This weakness could make GXO a candidate for bearish positions or a potential short in a pairs trade.
A classic pairs trade strategy could be effective here: buying FedEx call options while simultaneously buying GXO put options. This approach allows us to profit from FedEx outperforming its peers while protecting against a broader market downturn that could negatively impact both stocks, as it focuses on their relative performance.
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