Look for FedEx to deliver an upside surprise in 2009

Posted Apr 13th 2009 11:30AM by Joseph Lazzaro
Filed under: FedEx Corp (FDX), Stocks to Buy

To be sure, iconic FedEx (NYSE: FDX) isn't a 'back up the truck' play, but it is a suitable position for investors who can tolerate moderate risk. Here's why:

One could make a strong case that FedEx deserves to trade at the low end of it valuation, at a p/e of 10 or 12, instead of the current 21, given weak demand, and a probable, continued drop in package delivery volume in Q2 and Q3, but institutional investors aren't likely to take that stance.

In fact, only evidence confirming a continued, pronounced U.S. recession -- with monthly job losses above 500,000 -- will prevent mutual, hedge, and investment funds from continuing to add to holdings of FDX. And as they say on Wall Street, it's not 'better late, than never,' it's 'if you're late, then never.' Hence, the view from here argues, the above institutional incremental buys will support shares, and any upside revenue surprise by FDX will send shares much higher.

Other positives: FedEx is expected to convert lower-margin shipments into ground and freight delivery, which could also aid margins over the long term. The First Call F2009 / F2010 EPS estimates for FDX are $3.67 / $3.36.

Stock Analysis: FedEx is a moderate-risk stock. Consider buying a 25% position in FDX now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your FDX position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $27.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: delivery sector, fdx, featured