Ride the economic expansion with FedEx

Posted Oct 29th 2009 4:30PM by Joseph Lazzaro
Filed under: FedEx Corp (FDX), Stocks to Buy

Institutional investors have issued a positive verdict on FedEx Corp. (NYSE: FDX), and typical investors who can tolerate moderate risk should, as well, which is why I'm Reiterating my Buy rating for the company, first recommended on April 13, 2009 at a price of $50.98. If you bought FDX in April, you're up about 45%.

In FY201,0 FedEx's revenue will likely decline 6-8%: ignore it, as IIs are already psychologically in FY2011, and by that time volumes should show improvement. By FedEx unit, Freight revenue should stabilize, Ground will likely record flat results, and Express will likely show a modest 2-4% decline. One potential negative: it remains an open question whether FedEx can pass along all of its 5.9% rate increase in FY2010.

Still, investors should keep in mind that better-than-expected U.S. GDP growth will send even more IIs into delivery stocks. Second, FDX's EPS growth should outperform the market during the next 3-5 years – another metric that the big guns look for. The First Call FY2010/FY2011 EPS estimates for FDX are $3.14 to $4.29.

Stock Analysis: FedEx Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in FDX now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your FDX position before December 2009. Sell/Stop Loss if you were to buy shares in this company: $27.

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

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