FedEx may move lower after 4Q warning; rebound unlikely before 2009 - analysts

Morgan Stanley said the company's new guidance of quarterly earnings between $1.45 to $1.50 a share, down from a prior estimate of $1.60 and $1.80 a share, not only points to the negative impact of higher fuel costs but also a further deterioration in demand for its premium express air delivery service.

It said demand could weaken further for its express service as the company passes on the higher fuel costs to its customers in the form of surcharges. "While FedEx Ground and International are the growth drivers, we can't overlook that Express makes up over 60% of FedEx's operating profit," the broker said.

For JP Morgan, the concern is also about falling Express volume trends, prompting the broker to cut its fiscal 2009 earnings estimate to $5.86 a share from $6.40 a share.
It now sees flat growth for the company's Express services versus a prior forecast of 1.7% year-over-year growth.

"We see little reason for optimism regarding FedEx stock in the near term," the broker said. JP Morgan holds a neutral rating on the stock. Morgan Stanley said the company's shares may have pulled back ahead of the report, but it still sees the stock falling further in the near term given the economic headwinds. In the last week, FedEx shares have fallen just under 7%, ending Friday's session at $90.37.

For Lehman Bros, the company's fourth-quarter warning should see investors shift toward more reasonable expectations for fiscal 2009. It said its 2009 earnings estimate of $6 a share reflects the likelihood of a recession in which both the company's international and domestic operations see a slowdown. Lehman said it still maintains a preference for its rival UPS, saying the company's current valuation and long-term growth prospects should reward "patient long-term UPS investors."

Lehman has overweight rating on UPS and a price target of $81 compared to an equal-weight rating for FedEx and a price target of $106.