Following an announcement by the world’s largest express transportation network company, FedEx Corporation (NYSE: FDX), to increase its dividend payout by 60%, the share price increased $1.56 to close at $164.83 on Tuesday. The company, which performed in an exceptional manner in the third-quarter, has created optimism about the whole sector. Thus, for the reasons discussed below, we can expect the share price to remain bullish in the fourth quarter of fiscal 2016.
The Memphis based company reported a fiscal 2016 third-quarter revenue of $12.7 billion, up from $11.7 billion in the similar period last year. The consensus estimate of Thomson Reuters is $12.34 billion.
The third-quarter operating income of the company increased by 51% to $595 million, from $393 million in the similar period last year.
For the third quarter, the GAAP income of the company declined to $507 million or $1.84 per share, from $628 million or $2.18 per share in the year-ago corresponding period. However, the non-GAAP income increased to $692 million or $2.51 per share, compared to $628 million or $2.18 per share in the prior-year corresponding period.
For fiscal 2016, FedEx increased its lower end of the previous earnings outlook range of $10.40 to $10.90 per share to $10.70 to $10.90 per share. This corresponds to an increase of 20% to 22% in the earnings on a y-o-y basis.
On May 25th, 2016, the company announced that it has successfully completed the acquisition of TNT Express. While FedEx is a leader in the air express network, TNT has an unrivaled leadership in the European road network. The Euro 4.4 billion acquisition deal is expected to result in operational synergies.
Finally, the rise in the dividend payout by 60% is expected to attract investors. Currently, based on Yesterday’s share price, the dividend yield is 0.6% per annum. The hike would take the yield to 1%. The yield is not high but shows the commitment of FedEx to return value to investors. The dividend yield of FedEx’s arch-rival, United Parcel Service (NYSE: UPS), is 3%. S&P Global believes that the company is trying to take the dividend yield closer to that of UPS’. Such a move would further push the share price upwards. Thus, fundamentally, the stock remains bullish.
The stock bounced off the 50-day moving average in mid-May. This indicates strong support for the stock. The RSI indicator reading of 53 indicates the bullishness in the scrip. The price chart also indicates firm support at 160. Thus, technically, we can expect the share price to rise in the weeks to come.
That being the case, a one-touch call option should be purchased to gain from the probable uptrend. A strike price of $170 or lower is suggested under these conditions. Similarly, it would prove beneficial if the closing day of the contract falls in the first week of July.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
