FedEx Earnings Preview: Earnings Beat Expected

FedEx [[FDX]] is scheduled to report their fiscal third quarter 2010 results before the market opens on Thursday, March 18th. Based on analysis from EarningsPreviews.com, FedEx is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $8.45 billion and EPS of $.75. This would represent a 4% increase in revenues from last year’s $8.14 billion in the same period. The current analyst consensus estimates calls for revenues of $8.30 billion and EPS of $.71. On December 17th, FedEx provided fiscal third quarter earnings guidance of $.50 – $.70 per share.

 

Earnings Analysis

FedEx is poised to deliver a solid earnings beat following conservative guidance that disappointed Wall Street back in December. We expect that this quarter will also mark an inflection point for FedEx following four consecutive quarters of year/year revenue declines. The company also faces very easy comps on the bottom line and we expect triple-digit earnings growth to be the headline story.    

 

FedEx management team has been very active over the last few months in restructuring the expense structure of the shipping giant (reducing over $4 billion in annual costs over the last two quarters). These cost savings have not only resulted in better earnings results the last couple of quarters, but also positions FedEx to post ever better earnings performances as the economy begins to recover. As the U.S. Postal Service begins scaling back on their service levels, FedEx is positioned to be one of the primary beneficiaries.

 

Stock Performance

In 2009, FedEx shares gained 30% and the stock outperformed the 19% gain in the Dow Jones industrial average. Since the beginning of 2010, FedEx stock is up just over 4% and has been outperforming the Dow Jones index again this year.

 

Valuation

FedEx is now trading at 18x consensus 2011 EPS estimates. This is a premium to the relative valuations of their peer group. FedEx stock delivered a tremendous return for investors over the last 12 months. However, we expect that a solid quarterly performance could lift the stock even higher following next week’s earnings release.

 

Recommendation: Buy with an $95 price target

 

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