Citi Thinks FedEx Corporation Needs Solid FQ1 Beat To Boost Sentiment

FedEx Corporation FDX is facing investor skepticism on the company's ability to widen its margins and a solid earnings beat on September 17 could turn around sentiment on the shares, an analyst said Thursday.

Doubts about improvements to the company's Express unit "is depressing FedEx's multiple and a first-quarter out-performance could unlock value," Citi's Christian Wetherbee said in a note.

Year to date, FedEx shares have gained about 6.7 percent versus the S&P's growth of 8.5 percent.

Wetherbee raised his first-quarter earnings estimate seven percent Thursday to $2.10 a share, from $1.91, citing improved small package growth, lower jet fuel costs and declining pension expenses.

Wetherbee maintained a Buy rating and $170 target. His forecast is well ahead of the Street consensus for first-quarter earnings of $1.94 a a share on revenue of $11.47 billion.

Wetherbee figures lower fuel costs will save $49 million in the third quarter. A lower headcount and pension costs will save an additional $129 million.

Fedex last year cut about 3,600 workers through voluntary buyouts and as of May, the company employed 112,000 permanent and 50,000 part-time workers.

The company lost an important legal battle last week when a three-judge panel of the U.S. Ninth Circuit Court of Appeals ruled that its the company's 32,500 independent contractors who work mostly for the FedEx ground unit are in fact employees.

Judge Stephen S. Trott of the circuit panel said the decision "substantially unravels FedEx's business model."

Wetherbee's recent analysis didn't address the ruling. The company said it will seek review of these decisions, including review by the entire 29 judges of the Ninth Circuit.

FedEx traded recently up 1.5 percent to $153.48 a share.