Big Expectations Going Into FedEx's Analyst Meeting

Tickers in this article: FDX UPS

NEW YORK ( TheStreet) - Lindsey Bell: Stephanie, one of your newer positions is FedEx. You like it for the longer term, but also for some near- and medium-term catalyst. What are those?

Stephanie Link:

Yeah, a couple of things. First we get their analyst day this week, it's actually two days. I think you are going to hear a lot about their restructuring, which I think is very critical for the long-term story, and near-term I think you'll get a nice boost from it. Secondly, you have the holiday sales coming up, which is seasonally a very good time to own the stock. And third lower gas prices, lower oil prices, is also a benefit. It's certainly not baked into numbers because it's so volatile it can go right back up, but it certainly is a plus right now.

Lindsey Bell:

Now the one thing that you didn't mention was their international business- Europe, Asia. This is what we've heard from them, most recently, that they cut guidance because of the slow down mostly in Europe. Are you concerned about that? Is that risk baked into these numbers now?

Stephanie Link:

Yeah, you know I think it is. It's about 30 percent of their total revenues. The stock is down five percent from when they announced disappointing earnings. So I think that a lot of that is already baked into the stock. And more importantly what they are going to do in this restructuring is focus more on ground and freight and less on express because in the slowdown in the global economies, here as well as abroad, people use less in terms of express because it costs too much. Right? So they are focusing more on the ground and the freight, which is something that UPS does very well, but FedEx hasn't really focused that much on it. So I think you are going to see that over time and that should be helpful to earnings.

Lindsey Bell:

How big could that shift look as the business shifts, and how fast can they get out of that once the economy does return?

Stephanie Link:

Well that's the thing. They are going to have to do something, and do something big, this week. So that's what we're kind of counting on, that they are going to make a bigger announcement than what most people are expecting. Now, should the stock fall on news because maybe we get just an in-line restructuring kind of thing? That's okay too because at least they are getting more efficient and their margins should improve over time. You'll just have to be a little more patient.

I do think that at these current valuations you are talking about 11 times earnings. Historically it's traded at 14 times. And it's trading at a 20 percent discount to UPS, which is the largest that it's really ever traded at. That is absolutely warranted at this point, given that hasn't executed as well as UPS, but I do think over time our bet is that they will narrow that gap.