FDX Preview: At Fair Valuation

FedEx (FDX - commentary - Cramer's Take) is slated to report earnings on Thursday morning with a conference call scheduled for 8:30 a.m. EST.

Current projections call for the company to post EPS of $1.58 on total revenue of $9.8 billion. Recall that the company preannounced the quarter and outlook just about a week ago and cited the global slowdown in volumes as the primary headwind (more than offsetting decreasing fuel costs) expected during 2009. Fiscal 2009 estimates are now for EPS to come in a range between $3.50 and $4.75, down from the prior estimated range between $4.75 and $5.25. Thursday's report will be the company's second quarter.

On the call I'll be interested in the following:

• the company's outlook for the global economy and when management sees a bottom to the current weakness;
• the mix shift from businesses going from overnight shipping to second-day air, etc., and the rate at which customers are shifting down their purchases;
• the outlook on fuel cost and oil prices; and
• the impact of DHL exiting U.S. business.

Given the sharp selloff in the stock over the last week, I think most of what the company will say Thursday is probably priced into the stock. Now that the stock is trading at about 14x to 15x forward earnings estimates, however, I think we are at about a fair valuation for the company. It's a bit of a conundrum because if you believe that the market has bottomed and you want to own cyclical stocks, then this is one you want, but the divergence between the broader market and the transportation stocks is a little misleading.

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Know What You Own: FedEx operates in the air delivery and freight services industry, and some of the other stocks in its field include United Parcel Service (UPS - commentary - Cramer's Take), CH Robinson Worldwide (CHRW - commentary - Cramer's Take), Expeditors International of Washington (EXPD - commentary - Cramer's Take), UTI Worldwide (UTIW - commentary - Cramer's Take), Hub Group (HUBG - commentary - Cramer's Take) and Pacer International (PACR - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Thomas was long FedEx, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.