Morgan Stanley Remains On Sidelines Prior To FedEx Earnings Awaiting 'Greater Visibility'

In a report published Tuesday, Morgan Stanley analyst William Greene previewed FedEx Corporation's (NYSE: FDX) fourth quarter 2014 and Full Year 2015 results. Awaiting greater visibility for cost savings in 2015, Morgan Stanley “remains on the sidelines” with an Equal-Weight rating.

FedEx CFO Alan Graf reported that management “should have a good show” for investors, analysts, and the general public in June.

Optimistic on 2015 results, Greene commented, “As it turns out, 30%+ EPS growth guidance and FDX's ability to achieve this growth is not unprecedented. In fact, FDX has given 30%+ EPS growth guidance (within the top-end of the range) three times in the past ten years – for FY07, FY11 and FY12 (See Exhibit 3), and actually achieved delivered 30%+ annual growth three times.”

The company estimated annual revenue benefit from DIM weight pricing, rolled out in 2007, of approximately $100 billion. With the extension of DIM weight pricing to ground packages as of January 1, 2015, Morgan Stanley estimates 2/3 of ground packages are less than three cubic feet in size, implying $200 million in annual revenue or $83 million contribution for the five months in 2015.

Amid a “modestly positive” preview, the analyst reminds investors that higher oil prices could likely weight on EPS and reduce consumers preference for express services. In addition, Greene remarked on FedEx's continued growth investments could lead to excess capacity and disappointing returns.

Cycle risks and structural headwinds from digitalization, overcapacity in airfreight markets, and trade-down from premium to deferred services, will also weigh on earnings.

FedEx will announce earnings on June 18, 2014. Shares of FedEx closed at $141.50 on Friday.