No Memphis Blues for FedEx -- Ahead of the Tape
June 20 2016 - 12:53PM
Dow Jones News
By Charley Grant
Sometimes the best defense is a good offense.
Shipping giant FedEx Corp. will test that truism on Tuesday,
when it announces fiscal fourth-quarter results. Analyst consensus
calls for sales of $12.7 billion and earnings per share of $3.28,
according to FactSet.
Though FedEx has missed analyst earnings estimates in three of
the past six quarters, tomorrow's headline results aren't likely to
mark a fourth. FedEx raised the low end of its full-year earnings
forecast in March.
Looking beyond this quarter, FedEx certainly faces its
challenges. In the near term, economic growth remains soggy. The
company lowered its calendar 2016 forecast for U.S. GDP to 2.2% in
March, from 2.6%. Meanwhile, possible competition from companies
such as Amazon.com looms over the long term.
So FedEx has invested aggressively in a bid to maintain its
growth potential. To that end, it closed on a $4.8 billion deal for
European TNT Express NV last month. The deal, the largest in the
company's history, allows FedEx to significantly expand its road
network in Europe. That was previously an area of geographic
weakness.
Plans for TNT are thus likely to be a focus of Tuesday's
investor call. FedEx has only said that the deal will be accretive
to earnings by fiscal 2018. Analysts at Cowen and Company expect
the TNT deal to initially be dilutive.
Still, management has forecast that European e-commerce sales
will grow 15% a year, according to Cowen. Ensuring the company will
be a significant player in that market should be more important to
shareholders than the initial impact to earnings. After all,
FedEx's ground segment, the primary beneficiary of e-commerce, now
accounts for more than one-third of company sales. A decade ago,
the ground business accounted for just 16% of revenue.
And despite a 9% rally in the stock price to start the year,
investors still are being fairly compensated for assuming the risks
embedded in the stock. FedEx shares trade at 13 times forward
earnings, according to FactSet. That is slightly below its
five-year average.
Growth worries aren't likely to dissipate anytime soon, but
FedEx stock is still a package investors can accept.
(END) Dow Jones Newswires
June 20, 2016 13:38 ET (17:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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