Through The Fly's Eyes: FedEx Corp

from Laurie Pasternack of Theflyonthewall.com





Could FedEx Be Next?

Absolutely, positively no one's safe. Take the article in the current (July 9th) Barron's, which points a finger at FedEx (FDX).

Barron's reports that because of its turnaround potential and modest valuation, FedEx could become a private equity target. Currently, the stock is valued at about six times expected FY08 earnings before EBITDA, and has an enterprise value of nearly $35B. Sources speculate that FedEx could attract a private buyer at 20% or more above its current share price of $110.

They also say that private equity investors are becoming "more label-conscious, paying up for quality, timelessness and prestige." In the past several months, "well-run, dearly loved, honest-to-goodness growth companies" similar to FedEx have been buyout targets. Such companies include First Data (FDC), Harrah's Entertainment (HET), Hilton Hotels (HLT) and Alltel (AT). A buyout of FedEx could help revive Kinko's, the company's weakest segment. Also, buyout firms may see an opportunity to cut capital expenditures.

But let’s not be hasty. Company executives were quick to point out that a buyout may not be likely. Chairman and CEO Fred Smith has given no public indication he's even thinking about going private.

Regardless, the company should do fine. Its market valuation is relatively low; it has a record of steady growth and has several assets it can use to help secure loans. Additionally, rival United Parcel Service (UPS) may face a strike next year, and that could do wonders for FedEx’s share price.