Why This Shipping Giant Is a Buy Today

Shares of FedEx (NYS: FDX) were hammered after the company posted earnings on March 22, despite profit more than doubling last year's. Let's take a closer look at why the shippers' strong quarter wasn't enough to stop the stock from falling nearly 4% yesterday.

As the world's second largest shipping and delivery company, FedEx gives us a good read on the overall global economy, which in this case doesn't look so hot. The Memphis-based company said, "We just don't have as strong an economy as we would have hoped it would be a year ago."

This announcement strikes a chord because the shipping giant pulled back on its bullish prediction for record annual earnings. While I typically lean toward companies that underpromise and overdeliver, this time I think the market is overreacting to the shipper's outlook.

More realistic predictions
Gazing to the future, FedEx expects slow global economic growth, which will likely lower the amount of packages shipped worldwide. That's why the company forecast a conservative profit for its fourth quarter, targeting between $1.75 and $2 per share for the period. The stock is trading down on the news, which I think creates an opportunity for shrewd investors to pick up a well-run business with a healthy balance sheet.

Too often investors react to the immediate news without stepping back to view the bigger picture. From where I'm standing FedEx looks great; for the year, its stock is up over 10%. Mark that against the world's largest shipper, UPS (NYS: UPS) , whose shares climbed 9%.

Both FedEx and UPS recently flexed their market dominance by successfully raising prices -- proving that customers are willing to pay up for faster, more convenient service even in a slow economy. Mix in FedEx's strong third-quarter performance and there are even more reasons to buy the stock.

Delivering results
Excluding one-time items, profit climbed from $0.81 a share a year ago to $1.55 on record shipping volume over the holiday season. The strong profits were also driven by shipments from e-tailers like Amazon.com -- a trend that will only get stronger as worldwide e-commerce sales continue to grow. Initiatives like FedEx SmartPost play into this by offering e-tailers an affordable way to ship packages to customers. The SmartPost program gained speed last year with 31% revenue growth.

FedEx generated third-quarter revenue of $10.56 billion, which is a 9% increase from the same quarter a year ago. All things being equal, FedEx delivered impressive results. The depressed prediction for its upcoming quarter along with a sour read on the overall economy may have overshadowed these earnings, but it doesn't change the fact that FedEx is a great long-term investment. For this reason, I'm giving FedEx a three-year outperform rating on my profile in Motley Fool CAPS.

Do you think FedEx can outperform rival UPS and the broader market this year? Let me know in the comments section below and don't forget to add these stocks to MyWatchlist so you can track and monitor their progress.

At the time thisarticle was published Fool contributor Tamara Rutter does not own shares of any stocks mentioned in this column. Follow her onTwitter, where she uses the handle@TamaraRutter, for more Foolish insights and investing ideas.Motley Fool newsletter services have recommended buying shares of FedEx. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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