Citi Trims Estimates On FedEx Corp.; Reiterates Buy Rating

Citi is lowering its EPS estimates on FedEx FDX for F3Q11 and F2011 due to cost pressures from sequentially rising fuel prices and disruptive winter weather domestically. Citi reiterates its Buy rating and $110 price target, which is based on a 17x target multiple of its unchanged F2012 estimate. The bull case for FedEx is underpinned by improving economic growth domestically and internationally, which is likely to drive better volumes and solid pricing. With an economic tailwind, operating leverage from its asset base, and high return investments in new aircraft, Citi believes FedEx is poised for margin expansion in F2012, which is the catalyst for our target for 29% YOY EPS growth. Citi is lowering its F3Q11 and full year F2011 EPS estimates 9% and 3%, to $0.99 and $5.01, from $1.08 and $5.15, respectively. Since the beginning of FedEx's F3Q11 in December, jet fuel prices have climbed 11% sequentially, which given the company's Express segment fuel surcharge lag of approximately 6-8 weeks will provide a headwind to profitability in the quarter. FDX closed Friday at $90.48