Wednesday, June 18, 2014

FedEx: Could Oil Undo Optimism?

FedEx delivered top-notch financial results and its shares are being rewarded for it. There is one reason for pessimism, however: The rising price of oil.


Cowen’s Helane Becker and Conor Cunningham explain why oil could be a problem:

FedEx forecasts F2015 EPS to be in the range of $8.50 to $9.00, compared to our estimate of $8.15 and the consensus estimate of $8.76. Management’s F2015 expectations assume a similar fuel environment and modest economic improvement. FedEx F2015 results should benefit from improving results at Express, continued strong results at Ground and Freight and further execution of their share repurchase program. We believe the shares will react favorably to the outlook despite guidance being in line with Street expectations. Forward earnings estimates across the Street have declined, as many were somewhat cautious on the quarter, so a confirmation should be viewed favorably. We are a little concerned about management expecting fuel to be relatively unchanged as crude prices have spiked in the near-term; clearly this could be short lived but it might cause some concern around the outlook.

Those concerns, whoever, will be left for another day. Shares of FedEx have gained 4.6% to $146.60 at 10:43 a.m. today, and its good news have given other shippers a boost: United Parcel Service (UPS) has risen 0.9% to $102.49.

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