FedEx to Deliver Value on Repurchase Program -- Ignore the Noise

Tickers in this article: FDX UPS

NEW YORK ( TheStreet) -- FedEx will report financial results for its fiscal fourth quarter before the market opens on Wednesday, June 18.

FedEx shares are down 2% year to date, closing Monday at $139.45. I see this as a great buying opportunity for a stock that's poised to transport a 30% premium on its way to $190 in the next 12 to 18 months. My target is just $2 shy of analysts' highest price target of $192 .

This premium will be fueled by a 2% to 4% annual revenue growth, which pegs full-year 2015 and 2016 revenue at around $46 billion and $47.5 billion, respectively.

Investors should also expect gross margin expansion helped by (among other things) strategic cost-cutting measures and lower fuel prices. Last but not least, FedEx has been aggressively buying back its stock, which should boost near-term and long-term earnings per share. 

Sure, earnings results over the past couple of quarters haven't been breathtaking. But management has done exactly what it has promised to do in terms of both revenue and profits.

In the March quarter, for instance, although FedEx missed estimates for both revenue and earnings, management delivered revenue of $11.3 billion, which grew 3.2% year over year, while EPS grew 9% year over year, to $1.23. Plus, over the next five years, FedEx is expected to grow earnings at a 15% annual rate, according to analysts at Raymond James.

Investors haven't been so sure , however. There are questions whether FedEx, which has always been a true leverage play on global economic growth, still has what it takes to deliver the goods.

It also shouldn't be ignored that the company is in transition. Management is adjusting to the shipping habits of the global consumer. To that end, management has instituted strict cost-cutting measures, which has driven higher profits despite global weakness and challenging economic conditions. I expect these initiatives to continue and possibly surprise analysts with a strong beat.

Revenue, on the other hand, may disappoint those who are looking for a quick fix. FedEx's Express segment, its largest business that accounts for 59% of total revenue, is struggling. Consumers in both developed and emerging markets are looking for cheaper ways to ship their goods. In the March quarter, Express revenue was flat. Lower freight and lower fuel surcharges continue to impact growth.

This was offset by FedEx Ground and FedEx Freight, which posted revenue gains of 10% and 9%, respectively. The Ground segment accounts for 27% of total revenue. To the extent that Ground and Freight can deliver better-than-expected operating income and better margins, FedEx should do well in the near term as the company repairs the Express segments. Granted, those repairs may take time.

Adding to my bullish stance is Warren Buffett's recent 9% stake -- this trumps all other concerns. Buffett is known for conducting thorough due diligence that precedes any of his long-term positions. Based on Buffett's vote alone, one could ignore the near-term noise -- FedEx is here to stay. Plus, it's not as if FedEx has underperformed rival UPS , whose shares are down 2.5% year to date.