Of course they do. One of the key metrics in any business valuation is earnings/earnings growth. When a company cuts its forecast, Wall Street must decide whether it’s a “one off” type of earnings miss or if it’s more indicative of a longer-term trend. The latter is clearly worse, but any negative earnings forecast or change is going to increase the number of skeptics. FedEx Corp (FDX) lost more than 21% of its value on Friday after cutting both its revenue and earnings forecast. Was it justified? Perhaps, but maybe a bigger question is whether United Parcel Service (UPS) deserved to be whacked 4.5% for the business sins of FDX. This is many times where opportunities lie. UPS has been outperforming FDX for the past couple years – obviously, for good reason. Market participants are much more comfortable with the business plan and strategy of UPS. Below is a chart of UPS and, in the bottom panel, you’ll see a “paired” chart, where UPS has been the BIG winner vs. FDX for quite awhile. Check this out:
With the exception of March through June of this year, UPS has been crushing FDX on a relative basis. So when FDX announces a cut to its revenue/earnings forecast, should we automatically assume UPS has similar business troubles, because they’re in the same industry? I don’t think so. UPS has been trading in a price range from 170-230 for more than a year and Friday’s sympathy drop takes UPS closer to this range support. 170 would seem to be a very solid reward-to-risk entry point, if you want exposure to this area of the market – especially after FDX lowered prices for everyone.
Using “pairs” like I did in the above example is a great technical way to compare stocks within the same industry. It’s a very quick visual that provides us the Wall Street consensus as to how the big firms view two companies. On Monday, I plan to do a similar comparison, examining two very well-known companies in one of the best-performing industry groups of 2022. You might be surprised by the winner in this pairing. If you’re not already a FREE EarningsBeats.com Digest newsletter subscriber (no credit card required), CLICK HERE to enter your name and email address and receive this comparison.
Tom Bowley is the Chief Market Strategist of EarningsBeats.com, a company providing a research and educational platform for both investment professionals and individual investors. Tom writes a comprehensive Daily Market Report (DMR), providing guidance to EB.com members every day that the stock market is open. Tom has contributed technical expertise here at StockCharts.com since 2006 and has a fundamental background in public accounting as well, blending a unique skill set to approach the U.S. stock market.