Financials, Tesla and FedEx

With the news Friday night about the Fed allowing share repurchases by banks again, a possible fiscal stimulus agreement being reached today, Sunday,¬† December 20th, 2020 and a Barron’s article this weekend talking about the possibility for more bank mergers in 2021, Monday December 21, 2020, could be a big day for banks and Financial stocks. (Here was the Friday night blog post.)

This s/sheet is worth posting Sunday might: it will be updated this week after the Street updates their Financial sector EPS estimates for 2021:

The data is from IBES by Refinitiv. The first two columns show “expected” EPS growth for calendar years 2020, and 2021.

The 6 columns to the right were added to show weekly changes in the sector’s “expected” EPS growth from Q4 ’20 through Q3 ’21.

This s/sheet will be updated this week after the sell-side updates their 2020 EPS estimates. Readers should see nice bumps  in 2021 estimates.

Financials as a percentage of the SP 500’s market cap closed Friday at 10.4%, just above the low of 9.9% this summer. (9.9% is the lowest Financial sector market cap percentage I personally saw reading the IBES data by Refinitiv reports, but it might have been lower at some point this summer, early fall, before October, ’20.) Schwab (SCHW) and JP Morgan (JPM) are the 5th and 6th largest individual stock positions when aggregating client accounts. The Chicago Merc (CME) and Goldman Sachs (GS) are ranked 15 – 17th in terms of largest positions, or basically mid-teens.

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David Aurelio at Refinitiv wrote an interesting analytical piece late last week as part of Refinitiv’s SP 500 market cap and earnings analysis. (Refinitiv has really upped their game in the last few years with earnings analysis. You can read full European and other non-US earnings analysis on the website. I think readers can subscribe for free too. Be sure and read the various Refinitiv blogs to stay abreast of global earnings.)

The above table shows the SP 500 “pre-Tesla” and “post-Tesla”.

That’s a pretty big influence for one single stock.

Tesla traded 222 ml shares on Friday, December 18, over 4x average, and now has a $658 billion market cap.

What worries me is that Jim Chanos of Kynokos still thinks Tesla is a “fraud”. That is strong language.

This blog is long some Tesla for client accounts at much lower prices. The stock is up 730% this year in terms of its “trailing” YTD return as of Friday, December 18th, 2020. It’s gotten to be a bigger position in some client accounts even though it started out well down the “weighting” stack, given the return.

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Fedex (FDX) reported fiscal q2 ’21 financial results last Thursday night. I typically wait 24 – 48 hours before checking SP 500 estimate revisions after companies report and upon updating the forward EPS and revenue estimates for FDX on Sunday, December 20th, all buckets saw higher EPS and revenue estimates.

The big fundamental news though was the sharp increase in “4-qtr trailing free-cash-flow” which reached $2.85 billion. FedEx has not had a quarter come close to that figure in the last 20 years, but that is what happens when you get a dramatic jump in volume through a high-fixed-cost, operating-levered, business model.

The FedEx earnings preview written for Seeking Alpha last week talks about this. A post earnings article is coming too, on Seeking Alpha.

An estimated guess is that – while free-cash-generation could remain high for the next quarter or two – the growth will begin to taper again as tough comp’s are faced mid-’21.

Ground margins were less than what was expected by the Street, but that might ease after the holiday period.

Summary / conclusion: There was lots to write about this week, but not the time. Watch the Financial sector this week. Since the March 23rd lows, Monday’s have typically seen big green opens as it is, and with the Fed releasing share repurchase activity Friday night after the close, Financials will likely be green Monday for several reasons.

There are two weeks left in the calendar year and roughly 7 – 8 trading days.

Grateful to all the regular readers and for Seeking Alpha picking up the blog on a weekly basis.

The real reason for writing every week is to impose a discipline to constantly stay abreast of and focused on market fundamentals.

Have a wonderful holiday. More posts will be coming this week. Remember too take all contents on this blog with skepticism. There is no person, one style, one methodology, one system, or one firm that beats the market 100% of the time.

The market is way overdue for a correction with the sentiment indicators really elevated.

Thanks for reading.

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