Lowering Estimates on Cautious Guidance, Maintaing Outperform Rating

3/20 - "...management commented that they do not have as much confidence in the fourth quarter range as usual given the volatility in fuel prices. For fiscal year 2009, management guided for limited earnings growth if current fourth quarter trends continue. Management's guidance is predicated on expectations for slower U.S. GDP growth in calendar 2008 than last year. U.S. GDP grew at an average annual rate of 2.5% in 2007. Additionally, management expects the international economy to expand, albeit at a lower rate than in 2007."

"Based on our new FY08 and FY09 earnings estimates of $6.11 and $6.23 per share, shares of FedEx Corporation are currently trading at 14.1x and 13.8x, respectively...Shares are currently trading at a discount to its primary competitor, which is trading at 16.4x and 14.3x, respectively. Furthermore, shares of FedEx Corporation are
currently trading at a significant discount to its historical closing NTM P/E average multiples of 15.7x since May 1989 and 16.9x since early 2000."

"Given solid results in the fiscal third quarter, we believe management is doing a good job at managing its business in a clearly softening economic environment...We believe that if the economy and/or fuel prices were to stabilize and/or improve, we could see better-than-expected results from the company as it leverages its business model, even without significant new investments. Additionally, the company's current investments, including its domestic China network as well as more fuel efficient aircraft, should provide long-term benefits to the company but this investment will likely continue to negatively impact short-term profitability. Given the company's long-term growth opportunities and what we believe to be relatively undervalued shares, we reiterate our Outperform rating."