On Jan 24, 2013, we upgraded FedEx Corporation (FDX - Analyst Report) to Neutral from Underperform. The upgrade rests on strong growth prospects with an upward movement in pricing, a diminishing expense base, profitable alliances and investment programs.
These positives were offset by the lingering effects of the Eurozone crisis, heavy pension liabilities, competitive pressures and regulatory issues that will likely dampen the near-term growth.
Why the Upgrade?
In the coming days, we expect FedEx to register strong earnings momentum and growth through long-term expansion opportunities. In Nov 2012, the company increased its shipping rates by 4.9% for FedEx Ground and FedEx Home Delivery shipments.
The company also raised shipping rates by 3.9% for FedEx Express, covering U.S. domestic, U.S. export and import services. These initiatives will substantially enhance the company’s earning power over the next several quarters.
Global express delivery services provider, FedEx, has set a target of $1.7 billion in incremental profit to be achieved by the end of 2016 based on cost improvements. The company aims to spread its services across the U.S., Canada and Mexico and capitalize on potential business opportunities in NAFTA (North American Free Trade agreement) markets.
Further, FedEx is boosting its international business by heavy investments to enhance the existing routes and make strategic acquisitions. The company has allocated 46% of its capital expenditure budget of $3.9 billion for fiscal 2013 for growth initiatives and 54% for the existing operations.
However, for the third quarter of 2013 – expected to be reported on Mar 20 – the Zacks Consensus Estimate for earnings is $1.39 per share, reflecting a year-over-year decline of 10.6%.
Other Stocks to Consider
Other stocks in the Air Delivery & Freight Services sector that are currently performing well include SK Telecom Co. Ltd. (SKM - Analyst Report) that has a Zacks Rank #1 (Strong Buy), Ryder System Inc. (R - Analyst Report) and Air Transport Services Group Inc. (ATSG - Snapshot Report). Both Ryder and Air Transport Services hold a Zacks Rank #2 (Buy).