What happened
Shares of FedEx (FDX +0.70%) gained more than 7% on Tuesday as investors cheered promising signs of an economic recovery. FedEx and other transport companies have been hit hard by the COVID-19 pandemic, but FedEx is well positioned to rebound if and when the economy begins to recover.
So what
FedEx shares were hit hard in the early days of the pandemic, losing nearly 40% of their value during a period from mid-February to mid-March. The global outbreak slowed economies, cut supply chains, and led to weak demand for shipping services.
Image source: FedEx.
The timing of the pandemic was particularly difficult for FedEx holders, who suffered through a miserable 2019 and were hoping for a rebound in 2020. FedEx shares underperformed last year in part because the company was spending to increase its domestic capacity, but with the economy slowed at least for now, that added heft was not needed.
In April, the company suspended its guidance and moved to shore up its liquidity until the pandemic and its economic aftermath subside.
Investors were optimistic on Tuesday that the worst might be behind us, encouraged by signs of economic normalization over the Memorial Day weekend in the U.S. There was also good news on the COVID-19 treatment and vaccine fronts.
Now what
FedEx is well positioned for the long term, but investors need to be careful that the stock market doesn't get ahead of the economic reality. While lockdowns are ending and economic activity seems to be returning, the pandemic is far from contained and the near-term outlook remains uncertain.
For patient investors, there is a lot to like about FedEx. But the company's recovery still feels like more of a 2021 story than a 2020 story after all that has happened this year. Those buying in today will likely benefit over time, but shouldn't expect it to be a straight shot up from here.
