Federal Express Worth 25 P/E? I Don't Get It

Federal Express (FDX) reported earnings last Thursday. Revenues were off 20% from the year ago period and net income 53%, though EPS of 58 cents a share was well above previous guidance. FedEx talked some about recovery and CEO Fred Smith went so far as to forecast 3% GDP growth in the 3rd quarter, 4.9% in the 4th quarter and 2.9% in 2010 on the conference call.

The stock has been on a tear, doubling since the March lows. The stock closed Monday at $75.59.

Click to enlarge:

FDX earned $3.76 last year and is forecast to earn $3.06 in its fiscal year ending May 31, 2010. That’s about a 25 multiple on this years earnings - earnings that will be down almost 20% from the previous year on weak revenue. Why is this stock worth anywhere close to 25 times earnings in the current environment? That valuation makes no sense to me. Many other similar examples could be given.

Disclosure: Top Gun has no position in Federal Express (FDX) shares.

Comments

[notsosmart:]

whats so surprising in this ponzi/casino world called wall st.? its all turned into a game like fantasy football or baseball.short,long,up, down,options,puts,call... stops etc., more rules than gambling in a casino.investing is a word becoming history.wall st loves it.no long term-just trade & put commissions in the brokers pocket.

Sep 22 04:08 PM

[dtrader:]

Greg I'll pose a question to you, if you think FDX is so out of line why are you not short the stock? ...and since your not short the stock I guess you can not think the valuation is really that out of line.

Sep 23 03:56 AM

[kotika98:]

i think you are missing the solid balance sheet and the possibility that FDX will earn north of $4.50 EPS in calendar 2010. FY2010 is so over.

Sep 23 11:03 AM