Over the weekend, Barron’s suggested that Federal Express (FDX) shares might rise given the company’s presence in overseas markets, such as China. The magazine also noted that FedEx has cut expenses significantly and that its costs will not rise as quickly as its revenues.
The story is probably the main reason that FedEx shares have risen to a new 52-week intra-day high in early trading today.
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What could put a damper on the company’s quarter is softness in the retail market. The U.S. Commerce department this morning released its report on retail sales for October. The report showed growth of 1.4% in the month, compared with a 2.3% decline in September.
However, only 0.2% of the growth was assigned to sales, with the rest going to automobile purchases, no doubt inflated by the successful cash for clunkers program. Overall, the outlook for retail sales is improving, but it remains weak.
As retailers report earnings this week, the companies’ outlooks could have a greater impact on share prices than actual third quarter results. For example, Sony (SNE) predicts that its holiday sales will continue to be soft.
If Sony is right, then Fed Ex’s prediction that it will move more than 13 million packages on December 14th, a million more than last year, could be just wishful thinking.
The mean target price for the company’s shares is $87.73, with a high of $102 and a low of $75. The forward P/E ratio is 25.7, which is pretty rich these days. Higher fuel costs, if crude oil continues to rise, could hurt the company if customers decide to reduce shipments rather than pay fuel surcharges.
For now, though, Fed Ex appears to have done many things right, and shareholders are being rewarded with rising share prices. Consumer confidence and retail sales will drive profitability going forward though, so the jury’s still out on a longer term outlook
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