Earnings from FedEx and Lennar Support Five Portfolio Positions

As we get ready to close out what has so far been a positive week for the market and the Portfolio, let’s remember that today is a triple-witching event and that means we should expect some added volatility.

In keeping with our post-Fed rate cut plan, we’re looking for opportunities to put some capital to work, recognizing that the 2024 presidential election and the September quarter earnings season are the next center-ring items that the market will focus on. While we have some price targets, ratings and potential entry points to revisit, we aren’t going to chase opportunities, given the market’s overbought status and stretched valuation.

While Friday is poised to be more volatile, it has no fresh economic data on tap and only quarterly results last night from FedEx FDX and Lennar LEN to digest.

Later on Friday, we have Philly Fed President Patrick Harker giving a speech at 2 p.m. ET. Coming off the Fed’s midweek policy meeting, we’re not expecting that Harker will break new ground so soon after Fed Chair Powell’s comments. Harker could reiterate that the Fed will be watching incoming data closely as it plots its next policy moves, but that is something we already plan on doing.

Amazon Is Likely Eating into FedEx’s Lunch

FedEx posted disappointing August quarter results and lowered revenue outlook for the year, but it cited the industrial economy and e-commerce as areas of expected growth. Management commented that its volumes were pressured in the U.S. and we have to wonder how much of that is due to Amazon AMZN and its delivery fleet.

The other stand-out comment made during the earnings call from FedEx CFO John Dietrich was that the company is “not in a position to give quarterly guidance” even as its current quarter contains a few months of the year-end holiday shopping season.

That’s a bit surprising, given the Deloitte forecast and Thursday's announcement by Macy’s M that it will hire more than 31,500 full- and part-time employees for the upcoming holiday season. While that sounds like a lot, it’s fewer than the 38,000 last year and the 41,000 it announced in 2022. Contrasting those suggests Deloitte’s call for digital shopping to take further wallet share this year is on the money, and we see Amazon being a prime beneficiary.

Backing up our thinking is Amazon’s Prime Big Deal Day set for October 8, 2024 to October 9, 2024, which we view as pulling the holiday shopping season forward.

Lennar: Rising Deliveries and Upbeat Outlook

While FedEx disappointed, Lennar, the second largest U.S. homebuilder, surprised to the upside and shared expectations for deliveries of new homes to rise in the current quarter to 22,500 to 23,000. That compares to 21,516 delivered in the August quarter, which was stronger than Lennar’s 20,500 to 21,000 unit guidance issued in mid-June.

Pulling the lens back and reflecting on Lennar’s delivery schedule over the last few quarters and its outlook for the current one suggests a 21% increase in deliveries in the second half of the year compared to the first half.

That suggests a solid pick up in the housing market, which supports our bullish stance on United Rentals URI, Vulcan Materials VMC, Waste Management WM and especially Builders FirstSource BLDR.

And yes, Lennar is called out in Builders’ 10-K filing as one of its customers. We do want to be careful in reading too much into any one homebuilder given the potential for market share gains at the expense of other builders. We’ll look for confirming comments when KB Home KBH reports next week. We’ll also be looking to see if KB management echoes the upbeat outlook issued by Lennar CEO Stuart Miller: “We fully expect an even stronger, and more broad-based demand cycle, as rates move lower.”

If so, that would be more good news for our BLDR shares and paint a favorable demand picture for United Rentals and Vulcan Materials across both their non-residential and residential-facing businesses. The same goes for Waste Management.

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At the time of publication, TheStreet Pro Portfolio was long AMZN, URI, VMC, WM and BLDR.