Can FedEx deliver?
Some analysts skeptical the carrier
will benefit from Web shopping
boom
December 7, 1998: 1:57 p.m. ET
NEW YORK (CNNfn) - A weekend
article about how Federal Express
Corp. may benefit from the boom in
Internet sales drove the stock's price
sharply higher Monday, but some
analysts who follow the stock are
skeptical about the company's
prospects of benefiting from
e-commerce.
On the strength of the story, which
was published Saturday in Barron's,
FedEx (FDX) stock was up 7-7/16 to
74-11/16 in midday trading. It
climbed as high as 79-1/2, a 52-week
high, earlier in the session.
The Barron's story quoted FedEx
founder and chief executive Fred
Smith as saying his Memphis-based
air freight company expects to benefit
"to a far greater degree than many
people expect" from this holiday
season's Internet sales boom. Smith
said he expects his company to
deliver a good part of the $21 billion
in goods being delivered for online
merchants this year.
But the fact that the company is
shipping a lot of goods bought online
is nothing new. And FedEx's other
troubles -- including having to
outsource shipments to other air
freight companies and its still
uncompleted labor negotiations with
its pilots -- make any growth from the
Internet problematic, according to
David P. Campbell, who follows the
company for Scott & Stringfellow.
"They've been trying to reduce the
amount of business that they do to
people's homes, and concentrate on
more business-to-business
shipments," Campbell said. He also
said that Internet orders are just an
extension of the catalog orders that
have been part of the shipping
business for the past few years.
Other companies in the shipping
business, including Airborne Freight
Corp. (ABF), stand to do just as well
in shipping Internet orders, said
Steven Lewins, an analyst with
Gruntal & Co. But he saw a "halo
effect" for FedEx from the Barron's
story.
"Federal will ship a lot of
packages, but so will Airborne," he
said. "It's just a question of getting the
contracts."
But other air freight carriers have
gotten a secondary boost from the
Barron's article. Airborne Freight
was up 1-15/16 to 30-13/16, and
CNF Transportation (CNF), which
operates the Emery air freight
service, was up 2 to 36-5/16.
The runup in FedEx stock went a
little too far in Lewins' eyes. He
placed a hold on the stock Monday
after it reached his price target of 75.
And he expressed skepticism about a
$200-a-share price within a year, as
mentioned by a pension fund
chairman in the Barron's story.
"This is not an Internet stock, this
is a shipping stock," Lewins said.
"I think the company's earnings are
under a lot of pressure in the near
term, and I don't see the stock doing
much" until the situation changes,
Scott & Stringfellow's Campbell
said.
In fact, if any shipping company
stands to benefit from an Internet
retailing boom, the analysts said it's
one whose stock isn't publicly traded
-- United Parcel Service -- which
specializes in deliveries to homes.
"UPS is the biggest beneficiary of
this," said Campbell. "I can see them
doing an IPO in a heartbeat." |
