FedEx Extends Postal Service Bond

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FedEx Express, an affiliate of FedEx Corp. (FDX), announced that it will continue with the air cargo delivery contract with the U.S. Postal Service. The agreement, which was supposed to expire on Sep 2013, has been renewed for the next seven years. The new contract comes into effect from Oct 2013.

Per the renewed deal, estimated at $10.5 billion, FedEx Express will continue to render transportation of Express Mail and Priority Mail within the U.S. airports. FedEx Express aims to provide the same high-quality services that it has been offering over the last 12 years to the Postal Department through the new agreement. Interestingly, the revised contract calls for enhanced operations, more capacity flexibility and improved activities.

Memphis, Tennessee based FedEx is the leader in global express delivery services and intends to spread its operations across the U.S., Canada and Mexico and capitalize on potential business opportunities in NAFTA (North American Free Trade agreement) markets. The company is boosting its international business by heavy investments to boost existing routes and make strategic acquisitions.

FedEx also launched a new business tool to aid e-commerce customers in their shipping process. The new system, fedex.com Integration Manager is a Web-based tool that connects with platforms like eBay Inc. (EBAY), Amazon.com Inc. (AMZN) and Google Inc. (GOOG). The seamless connection allows enterprises running multiple online stores to simplify their selling and shipment process.

In the coming days, we expect FedEx to register strong earnings momentum and growth through long-term expansion opportunities. In Nov 2012, the company increased its shipping rates by 4.9% for FedEx Ground and FedEx Home Delivery shipments.

However, FedEx currently retains a Zacks Rank #4 (Sell), reflecting a number of risk factors. We expect the company’s expansion in Europe to remain affected by economic volatilities resulting in weak business from the continent coupled with low Asian demand. Further, increased investment, competitive threats and unionized workforce could limit the upside potential of the stock.  
 

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