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Bear Stearns analyst Edward Wolfe thinks investors are overly concerned about FedEx reducing guidance during next Wednesday’s conference call and have unduly driven down the share price:

FedEx (NYSE:FDX) has a track record of delivering conservative guidance and then subsequently beating its forecasts, Wolfe said, and the fiscal year 2007 earnings guidance, which will be introduced during FedEx’s fourth-quarter earnings announcement June 21, shouldn’t be any different.

Maybe it’s because just yesterday we were burned by one of those “expectations have gotten too low” arguments. Or maybe we just think Ed has been too busy obsessing over transportation stocks to realize that everything is down recently - it has nothing to do with expectations for FedEx, at least not specifically. Or maybe we’re just generally cranky today. Whatever the cause, we aren’t fully buying Ed’s story.

Wolfe estimated 2007 earnings of $6.76 per share and maintained an “outperform” rating and $126 price target on company stock.

The analyst said that both the domestic and international package markets remain very strong and pricing has recently firmed modestly.

As we noted before, FedEx has higher leverage than its closest competitor, United Parcel Service (NYSE:UPS). This means the company does better in strong markets (as it has for the last four years) and worse in poor markets (as it did the three years before that.) To that effect, look at what has happened to UPS while FedEx was sputtering. By comparison, UPS has been steady as she goes.

The market has been looking toward rough times ahead, which would favor UPS. This prediction by the market is a call on the economy, not on either stock. And if the market prediction is correct, all the conservative guidance in the world won’t be enough to help FedEx.

We don’t know whether the market is right on this call. To us, it could go either way. But at least we know what the market is trying to tell us. Because without that, we can never make a true call on whether it is right or wrong.

FDX-UPS 5-yr comparison chart:

FDX-UPS 5-yr chart

Source: FedEx or UPS? Depends On the Market's Strength (FDX, UPS)