Federal Express Valuation Makes No Sense To Me

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Federal Express (FDX) reported earnings last Thursday.  Revenues were off 20% from the year ago period and net income 53%, though EPS of 58 cents a share was well above previous guidance.  FedEx talked some about recovery and CEO Fred Smith went so far as to forecast 3% GDP growth in the 3rd quarter, 4.9% in the 4th quarter and 2.9% in 2010 on the conference call.

The stock has been on a tear, doubling since the March lows.  The stock closed today at $75.59.   


FDX earned $3.76 last year and is forecast to earn $3.06 in its fiscal year ending May 31, 2010.  That’s about a 25 multiple on this years earnings – earnings that will be down almost 20% from the previous year on weak revenue.   Why is this stock worth anywhere close to 25 times earnings in the current environment?  That valuation makes no sense to me.  Many other similar examples could be given.

Disclosure: Top Gun has no position in Federal Express (FDX) shares.

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