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Though slowing growth in Asia and weakness in Europe will take their toll on the top line, we were slightly surprised at the magnitude of the earnings revision, especially since the firm announced cost savings programs during its fiscal fourth quarter. We think some of the weakness we’ve seen in China is probably having a negative impact on the firm’s pricing. Demand is down across the board, as we’ve seen weak results in the country from retailers like Ralph Lauren (RL) and Nike (NKE). Additionally, we think fuel cost increases have outpaced expectations, which is another contributor to lower profitability (largely offsetting savings from more fuel-efficient aircraft).
Regardless, we think FedEx’s shares are fairly valued at current levels. The company registers a 6 on the Valuentum Buying Index (our stock-selection methodology), and we just aren’t very excited about the firm as long as global economic growth remains constrained. We’d look for shares to fall to the mid-$60s before becoming interested in the name for our Best Ideas Portfolio.
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