Ever since FedEx ( FDX) whiffed Wall Street estimates last quarter, the shipping giant has fallen out of favor, but Lehman Brothers still thinks there are reasons to like the company, which releases earnings next week.

On Thursday morning, Lehman analyst Jennifer Cooke Ritter told investors that FedEx could surprise analysts when it releases third quarter earnings on March 17. In Ritter's view, FedEx's early retirement program, which is expected to cut costs in the fourth quarter, could impact earnings earlier than expected. In reaction, shares of FedEx rose 92 cents, or 1.4%, to $67.12.

"There is some room for upside to our numbers," said Ritter, who expects the company to earn 68 cents a share, a penny higher than Wall Street estimates. "We have assumed all of the cost savings from the early retirement and severance program are a fourth quarter event, but if the company realizes cost savings earlier than our estimates, there is clearly some upside to our numbers."

Indeed, Wall Street earnings estimates for the upcoming quarter have been relatively stable for the last three months, settling in at 67 cents a share, with a high of 71 cents and a low of 62 cents. But there are signs that brokerages are quietly optimistic about FedEx's Mar. 17 earnings release, with A.G. Edwards and UBS Warburg tweaking estimates higher over the last week.

FedEx shares were off 5.3% in 2004 through Wednesday's session, in part because investors are skittish that its $2.4 billion acquisition of Kinko's won't pay off. Furthermore, with the price of oil above $36 a barrel and fears that the economic recovery is leveling off, Ritter said that investors are on the sidelines, waiting for FedEx to lower earnings expectations for 2005 at its analyst day meeting on April 7 and 8.

But in Ritter's view, investors should buy shares now because their fears are overblown, given recent shipping data from the Air Transport Association. In January, domestic airfreight volumes increased 2.5%, the second straight month of gains. Meanwhile retail sales and technology manufacturing are showing signs of recovery, with retail sales up 5% and computer production up 14% in January.

"We think that waiting until April 7 could be too late. Even if estimates are revised downward, the market is probably anticipating a worse downward revision," said Ritter. "It is unlikely that FedEx will deliver bad news at their analyst day? we think that it will be more of an upbeat day than many are expecting."

Wall Street is split on the issue, with most analysts preferring the growth story at rival UPS ( UPS). All told, nine analysts rate FedEx a buy vs. 11 for UPS. In a February note, Goldman Sachs stressed its preference for UPS, telling investors that the shipper's MailBoxes, Etc. retail arm was driving results, while its bread-and-butter ground shipping business continues to steal business from air shipping in domestic markets.

The preference for UPS is more understandable, considering UPS beat Wall Street estimates for the last quarter by a penny while FedEx missed expectations by 3 cents. But with analysts and investors pessimistic this time around, FedEx could be poised for a different kind of surprise next week.

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