We are maintaining our Hold on FedEx Corp. (FDX), but raising our target price to $90. In line with earnings guidance provided on September 9, FDX reported 2009 fiscal first quarter (August 31) EPS of $1.23, which was up from earlier guidance of $0.80-$1, but down 23% year over year, largely due to a 66% increase in fuel costs.
We are raising our fiscal 2009 (May 31) diluted EPS estimate to $5.25 from $4.90, the high end of FDX diluted EPS guidance of $4.75-5.25 and initiating our fiscal 2010 estimate at $6. Fuel surcharges will lag record high fuel costs and the weak economy will hurt LTL freight, U.S. express and copy services. Remedial actions include cost-control measures and cuts in capital spending. FDX recently increased its annual dividend rate by 10% to $0.44 per share, which provides a 0.5% yield.
FDX's long-term goals include: (1) grow revenue by 10% per year (8% in fiscal 2008); (2) achieve a 10% operating margin (7.4% in fiscal 2008); (3) increase EPS by 10-15% per year (down 13% in fiscal 2008); and (4) increase cash flow and returns.
Worldwide economic growth, cost-cutting initiatives, and rapid business growth in Asia are expected to propel earnings growth for FDX. Recovery of the global economy will be a key factor in the performance of the company's stock. The rollout of FedEx counters at Kinko's is expected to accelerate the company's volume and top-line growth by increasing demand for its services across all business segments. We also expect margins to stabilize due to the company's efforts to reduce expenses
Read the full analyst report on FDX
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.