After 20% gains (as of March 6), FedEx had lost roughly by April 18 all of its year-to-date gains amid fears of tepid economic growth, falling below $91 per share. However, spurred by rumors of interest from hedge fund manager Bill Ackman, investors quickly learned you can't keep a good company down.
While FedEx is without a doubt an iconic brand and a true leverage play on global economic growth, I just don't believe the 25% gains over the past five months are justified, especially for a company that is clearly in transition. It's certainly possible the company can prove me wrong on Wednesday when it reports fiscal first-quarter earnings. But given how disappointing FedEx's fourth-quarter results were, including a 41% decline in operating income, I'm not betting on it.
Now, I do appreciate that there were several one-time charges in that 41% operating income decline, much of which were attributed to the company's restructuring efforts. I will also grant that the company's 4% year-over-year revenue growth was solid and was in line with Street estimates. Nevertheless, the stock, by virtue of its price-to-earnings ratio of 21, is being valued as if this transition is fully complete.To that end, it also seems as if the Street has conveniently dismissed the words of FedEx Chairman Frederick Smith, who stated that his company is facing poor economic growth, while also describing what he sees as a situation where customers have begun to look for "less-costly international shipping services." (UPS).