FedEx

(FDX) - Get Report

stock neared its 52-week high Monday after the shipper announced 2005 rate increases indicating strong demand. The news could lead to further share-price gains, according to Merrill Lynch analyst Ken Hoexter, who Monday lifted his price target on the stock to $102.

FedEx late Friday said it would raise the rate on an average air shipment by 4.6% beginning Jan. 3, a greater increase than this year's 2.5%. The company will increase the rate on an average ground delivery shipment by 2.9%.

The move follows rival

UPS's

(UPS) - Get Report

announcement late last month that it would increase rates by 2.9% on both ground and express air shipments beginning Jan. 3.

"As FedEx (and recently UPS) posted rate increases that are a bit stronger than general expectations for 2005, we are increasing our price objective on FedEx to $102 from $93," wrote Hoexter in a research note. "We continue to be encouraged by the strong international volume growth and the rational pricing leverage within the industry." (Merrill Lynch does and seeks to do business with companies covered in its research reports.)

FedEx shares were up 39 cents, or 0.4%, at $92.33, close to their 52-week high of $92.61. UPS shares traded up 7 cents, or 0.1%, to $81.83.

In Friday's announcement, FedEx said it would offset the 4.6% air-shipment rate increase with a change to its fuel surcharges; the company is calling for an effective 2.0-percentage-point rate decrease. Currently, the company passes on a 0.5% fuel surcharge when the price of a gallon of jet fuel hits 52 cents. For each 4-cent-a-gallon increase in fuel prices above 54 cents, the surcharge increases by an additional 0.5 percentage points. But beginning in January, FedEx will raise the surcharge threshold to 66 cents.

Last month, rival UPS said it would cap fuel surcharges on air shipments at 9.5%.

Although FedEx's surcharge change benefits customers if fuel prices remain high, it could bolster revenue if oil prices fall.

"Similar to UPS, FedEx is reducing its fuel surcharge at Express, although where UPS capped the surcharge at 9.5%, FedEx increased the base price for when the surcharge kicks in, effectively reducing its fuel surcharge by 2% points," Merrill Lynch's Hoexter wrote.

Still, FedEx's rate changes are not without risk. "Although a bold move to shift price increases to a more permanent level (as opposed to volatile fuel surcharges), we hope this move does not cause a further shift in market share to more conservatively priced UPS," Hoexter wrote.