This morning, JPMorgan Chase upgraded FedEx (NYSE: FDX) to "overweight" from "neutral," citing the company's "strong operating leverage" that "should drive performance for the stock when there is improvement in the economy." The brokerage also stated that bad news is already reflected in FDX's stock price. They also upped the dean of delivery's price target to $66 per share from $60 per share.
Is this upgrade a smart move or wishful thinking? I have reservations on a couple of levels, so let's address those, shall we? My first reservation is on a fundamental level. The per-barrel price of oil is rising and could continue to rise, leading to higher gas prices. If this situation occurs, we could see FedEx punished a bit, mainly because of the company's reliance on gasoline. Yes, there is a possibility that FedEx could break its reliance on black gold, but it would take a fleet of hybrid or electric vehicles for this to happen -- and that costs a lot of money.
My other problem comes from the technical arena. At last check, shares of FedEx were running headlong into resistance from their 10-month moving average. The stock has not closed atop this trendline since 2008, and it looks like it may take quite a bit of positive news for such a move to happen. My biggest reservation is that the 10-month trendline rests below the $60 level, which is where the stock's target price was originally. If the stock can't break this resistance, how is it supposed to reach the new target price of $66?
Yes, the shares have rallied a bit lately, but I am not 100% sure that this recession is over, which could hamper any attempt at a continued run from any company, much less FedEx.
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