FedEx Analysts Look for Beat

MEMPHIS, Tenn. ( TheStreet) -- FedEx ( FDX) is having a good holiday season with improved volumes and a favorable court ruling, but the company is facing mixed expectations as it prepares report earnings on Thursday.

Several analysts expect FedEx to beat earnings estimates, but their expectations for the stock are tempered by expectations of conservative guidance.
Fed Ex

Analysts surveyed by Thomson Reuters expect earnings of $1.31 for the fiscal second quarter ending Nov. 30, of $5.21 for fiscal 2011 ending May 30 and of $6.22 for fiscal 2012 ending in May 2012. At mid-morning Wednesday, shares were trading at $93.03, down 30 cents.

In a recent report Morgan Stanley analyst William Greene said he expects $1.37 for the quarter. He said "at 15 times consensus F2012 EPS, FDX is not expensive in historical terms." But he noted "we struggle to recommend the stock as investors may need to wait until late in the fourth fiscal quarter or later when cost headwinds clear before the street comes to our view."

"Guidance could disappoint," Greene added, particularly in light of rising fuel costs and the seasonal weakness of the current quarter. Consensus estimate for the current quarter is $1.10 -- but Greene is at $1.

Avondale Partners analyst Don Broughton estimates $1.37 in the second quarter, the highest among 21 estimates. (The lowest is $1.22.) Broughton said his view is based on gains in volume and in pricing for international express and domestic ground. However, given rising fuel prices, he lowered his fiscal year 2011 estimate to $5.35, which is still ahead of the company's latest guidance to EPS between $4.80 and $5.20.

Goldman Sachs analyst Scott Malat also expects FedEx to beat earnings. In a recent report, Malat estimated $1.36 a share and raised his 12-month price target to $100 from $95. "We expect the upside to be driven by strong volume trends and domestic pricing growth," he said.

But like Greene, Malat questions the immediate future for the stock. He said "management has in the past provided targets below Street expectations," while a strong 2010 third quarter will make for a tough comparison.

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FedEx has had a good week. Monday was the busiest day in its history as it carried 16 million shipments; volume was up 13% from the busiest day of 2009.

On Tuesday, a federal judge in Indiana ruled that the company's drivers are independent contractors. Some FedEx Ground workers had wanted to be viewed as employees, which means they would be eligible for overtime pay, reimbursement of business expenses and union representation. More than 50 lawsuits had been consolidated into the case.

In his report, Greene noted that while he is upbeat about FedEx, UPS ( UPS) "may offer a better long-term opportunity." The company is benefitting from rising bond yields, which diminish its potential 2012 pension expense, and from stock buybacks. These factors "are underappreciated by the market," Greene said.

UPS said Wednesday, Dec. 22, will be its busiest day, as it will deliver 24 million packages worldwide. Pointedly, UPS said "the nine million extra packages that UPS will deliver on Dec. 22 represent more business than its largest competitor handles on an average day."

Next week, UPS will deliver 278 packages every second.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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