FedEx Upbeat Holiday Forecast

“And in what could be viewed as another positive for the economy, FedEx says its busiest day this year will also be its busiest day ever. They expect to ship more than 13 million packages on December 14th. The company says it will add 14,000 part-time workers to handle the holiday rush. Shares have been trading to the upside, up over 1%.” — CNBC’s Street Signs 11/10/2009

According to an emailed statement put out by the company, FedEx (FDX) is ramping up operations in anticipation of a record holiday shipping rush. Estimates from the company are claiming that somewhere in the neighborhood of 13 million packages will be shipped in the busiest shipping day of the year, which if true would make it their busiest day ever. This would be an increase of 8% from last year’s busiest day. The projection of 50 million packages for that week is an increase of 11 percent increase over last year. FedEx, headed by a respected economist Fred Smith, cited conversations with large customers, a return to growth in GDP, and increased industrial output among their reasons for optimism.

FedEx has seen volume increase recently thanks to a closer relationship with the U.S. Postal Service and the exit of competition DHL from the U.S. market. However, revenue is just starting to recover after four straight quarterly declines. With the new projections in place, it is very likely that this quarter will buck that dismal trend. Prior to the announcement of FedEx’s expectations, analysts were anticipating revenue would come in at about $8.1 billion or just about flat from a year ago. That number would seem to be well within reach if reality does in fact mirror expectations. Morgan Stanley (MS) raised its estimates for FDX this morning due in large part to general economic improvements.

Shipping gifts around the holidays is always a crucial time for FedEx, and today’s statements from the company are an encouraging sign for holiday sales. FedEx holds an important place as an economic indicator as the second largest shipping company in America, and retailers can only hope that they will live up to the upbeat forecast. That being said, shipping volume increased last year even though retail sales were largely a disappointment. The forecast from FedEx will not necessarily equate to great sales performance in general. It might be reasonable to expect that more gifts and goods will be shipped this year than ever before, but they also may be cheaper than in the past.

We currently rate FedEx as Fairly Valued at the current price level. This stock is currently sitting comfortably within the historically normal ranges of price-to-sales and price-to-cash earnings. The prospects for the company do seem to be improving along with the economy, but we believe there are better bargains available to investors.

FedEx Upbeat Holiday Forecast

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