Yesterday we had Best Buy missing estimates and issued a profit warning. Today we have FedEx out with second quarter results reporting EPS excluding certain items of USD 1.16 a share compared to USD 1.32 per share expected and revenue of USD 9.63 billion compared to USD 9.77 billion expected. The stock is trading 2 percent lower in early trading.
The company is experiencing its second quarter in a row with falling annualized revenue growth rate driven primarily by lower growth in international freight volumes. Annualized net income growth rate is also coming down driven primarily by higher fuel and maintenance costs for its jet fleet. With current estimated forward P/E ratio at 17.8, we don’t think, given the current trend in revenue growth and beginning pressure on margins, the stock has attractive upside compared to other stocks on risk-reward basis.
Today’s earnings report from FedEx leaves two questions on the table. Is this confirming our view that sell-side analysts have too high earnings expectations for 2011? Where does the sharp decrease in annualized revenue growth rate leave the economic prospects for 2011?
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