We are maintaining our Hold on FedEx Corporation (FDX).
As preannounced on Dec 8, FDX posted diluted EPS of $1.58, up 3% year over year. This performance reflected substantial benefits from the timing lag related to declining fuel prices, which more than offset weaker shipping volumes.
Given continued deterioration in the global economic outlook, we are cutting our diluted EPS estimate for fiscal 2009 (May 31) from $5.25 to $4.10, slightly below the midpoint of new EPS guidance of $3.50-4.75 and to $4.20 from $6.00 for fiscal 2010. Results should continue to reflect declining volumes that will overwhelm benefits of the DHL exit from the US market place and lower fuel costs. Remedial actions include cost-cutting measures and reductions in capital spending.
At its current price, FedEx is trading at a premium to its peer group median based on P/E, price/sales, and price/book. FDX trades at a discount to its closest peer, United Parcel Service, Inc. (UPS), as measured by P/E, price/sales, and price/book, reflecting UPS's higher operating margin, profitability, and dividend yield. We see limited upside potential over the next six months. Our $65 six-month price target is based on roughly 15.5x our fiscal year 2010 diluted EPS estimate of $4.20, about in line with FDX's average P/E over the past couple of years.
Read the full analyst report on FDX
Read the full analyst report on UPS
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