While Sharp Trader is not surprised FDX posted punk earnings after-all diesel fuel is priced higher than a reasonably priced bottle of Merlot; we think investors are also disappointed by the deterioration in FDX's Kinko's business owing to a weak economy.
For the quarter ended May 31, FedEx posted a loss per shares of $0.78 as compared to EPS of $1.96 a share in the year earlier period.
Excluding the $2.22 Kinko's related accounting charge, FDX's EPS was roughly 50% below the First Call estimate ($0.69 versus the street consensus estimate of $1.47).
FDX also issued new guidance for EPS in a range of $4.75 to $5.25 a share and fiscal first-quarter earnings of 80 cents to $1, which was also well below the street estimate of $5.92 and $1.27, respectively.
We think FDX's business is under competitive pressure from UPS and DHL as industry margins are squeezed by high fuel prices and operating costs.
We also expect the top line growth will slow due to a weak economy and predict FDX will take more charges as the company will need to cut its fixed costs as consumers buy locally due to the high cost of shipping.
We derive our $63 target by applying a 15x multiple to our EPS estimate of $4.25 for the current year and with roughly 25% downside to our target we recommend the sale of FDX shares.
FDX is a well run company however we think a short position in FDX is a good hedge against higher fuel prices and a weak economy.
Management has also underestimated the negative forces that will most certainly, in our view, pressure EPS through FY2010.
Sharp trader is also recommending the Short Sale of FDX shares as we expect reduced estimates from Wall Street and lower guidance from the company in the months ahead will lead to multiple contraction in the next 3 to 6 months.
Price: $81.96
Change-2.37% Change-2.81
Comprehensive Quote:
06/18/08 11:10 AM EDT
Volume 6,755,937
Open 80.75 High 83.76 Low 80.38
Prior Day'sVolume
4,796,801
52-Week High 119.10 (07/13/2007) 52-Week Low 80.00 (01/22/2008)
Prior Day's Close 84.33
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About Me
- Rich Tullo
- Richard Tullo is a securities analyst and trader with more than 20 years of experience. During the late 1990s he brought more than 40 technology companies public as a NASDAQ market maker for Hambrecht & Quist and Cowen and Co. From 2001-2004, Rich Tullo was an investment analyst for Providence Capital an activist hedge fund in New York. More recently, Rich was an analyst with Sidoti and Company a noted independent research firm and published investment reports on the Media and Telecom industry. Rich Tullo has also published numerous editorials, reports and industry white papers on infrastructure investing and exotic investment instruments