With many brick-and-mortar stores closed in recent months thanks to the novel coronavirus, shipping companies like FedEx (NYSE:FDX) are seeing increased traffic and profits. FDX stock is up 20% in the last month.
But I’m not looking for this ride to last. In fact, FedEx is living on borrowed time. Investors would be wise to take their profits now, before Amazon (NASDAQ:AMZN) reinstates its Amazon Shipping program and flexes its muscle once again.
It’s only a matter of time before the bubble of FDX stock pops.
FedEx’s Earnings at a Glance
Two weeks ago, FedEx reported fiscal fourth-quarter 2020 earnings that sent the stock up 9%. Its revenue came in at $17.4 billion, which beat analysts’ average estimate of $16.49 billion.
Its earnings per share, excluding certain items, were $2.53, which was more than $1 per share better than analysts’ mean estimate of $1.52.
The company said FedEx Ground’s business grew 25% year-over-year. While the unit’s business-to-business deliveries fell sharply because of the shutdowns, its business-to-consumer deliveries were more than enough to make up the difference.
FedEx reported that it had made tweaks to improve its profit margins and offset higher costs in Q4.
UBS analysts noted that FedEx’s Q4 results had cleared “a low bar,” as expectations for its earnings were modest. According to the firm, the company demonstrated that “the spread in profitability between their B2C and B2B business is likely not as wide as perceived.”
FedEx scored an earnings beat, but expectations were so low that the win isn’t that impressive.
FDX Stock Is on Borrowed Time
The shadow that falls over FDX stock comes from Amazon, the e-commerce giant that seemingly has its hands in everything.
Amazon is by far the biggest e-commerce player in the nation, with $280.5 billion of revenue last year. And it has its own delivery platform, bypassing FedEx and UPS (NYSE:UPS).
Despite its incredible size and reach, even Amazon found itself overwhelmed in the early days of the Covid-19 outbreak. The giant’s e-commerce sales exploded because consumers couldn’t go to brick-and-mortar stores.
Amazon hired 175,000 new workers to keep up with the demand, and it was forced to suspend its Amazon Shipping program. The pilot program let merchants who did their own warehousing also ship directly to customers, but it covered only a few major markets,
Covid-19 cases are overwhelming many southern states and California now, but there is increasing pressure for states to reopen their doors as soon as possible to get the economy moving again.
And happily, we may be closer to a vaccine than previously thought. Moderna (NASDAQ:MDRA) announced that its Covid-19 vaccine, which it’s developing in partnership with the National Institutes of Health, performed well in a Phase 1 trial. The company is now moving on to Phase 3 tests.
Remember, there’s no love lost between Amazon and FedEx. The companies severed their air and ground relationships last year, and things have been tense between them ever since.
Amazon barred companies enrolled in its “Seller Fulfilled Prime” program from using FedEx Ground and Home Delivery services. FedEx, meanwhile, purportedly told its employees not to order anything on Amazon’s platform, even for personal use.
Amazon won’t even think twice about cutting into FedEx’s business in the future.
Amazon is too strong of a company to leave money on the table. You can bet that it will restart its Amazon Shipping program as quickly as possible, and that it will expand across the country as soon as Jeff Bezos & Co. determine that the investment is worth the return.
That’s going to take a bite out of FedEx.
The Bottom Line on FDX Stock
Don’t be fooled by FedEx’s recent surge. The numbers are artificially inflated by Wall Street’s overblown enthusiasm over its Q4 earnings and Amazon’s temporary suspension of Amazon Shipping.
Remember, the U.S. economy hummed along nicely for all of 2019. And in that same period, FDX stock fell more than 6%.
That is more indicative of FedEx’s growth prospects once Covid-19 vaccines are launched and Amazon restarts its pilot shipping program.
If you’ve been holding FDX stock, then it’s time to take your profits and move on to better opportunities. Shorting the shares could also be worthwhile.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders. As of this writing, he did not have a position in any of the aforementioned securities.