FedEx raises outlook, shares jump

NEW YORK (Reuters) - FEDEX (FDX.NY)orp raised its outlook on Monday on strong volume growth, giving a boost both to its own shares and to the broader market as investors acted on hopes that the economy is stronger than they had thought.

FedEx's shares were up over 5 percent after the economic bellwether said more packages are flowing through both its air and ground networks, said BB&T Capital Markets analyst Kevin Sterling.

"This is macro-related," he said. "It's a volume-driven story."

FedEx now expects fiscal 2011 earnings of $4.60 per share to $5.20 per share, up from its previous forecast of $4.40 to $5.00, the company said in a statement.

Analysts on average were expecting $4.98 per share, according to Thomson Reuters I/B/E/S.

The company expects its premium "International Priority" service to grow more than 20 percent in the first quarter, the company said.

For the first quarter, ending on August 31, FedEx raised its earnings per share forecast to a range of $1.05 to $1.25, up from a prior view of 85 cents to $1.05 and ahead of analysts' estimates of $1.01.

Both FedEx and rival United Parcel Service Inc are poised to benefit from even a slow economic recovery because during the downturn, they cut expenses and became more efficient, said Sterling, who has a "buy" rating on FedEx and a $100 price target. "They're getting volume, which is growing the top line, and they've got leverage on the bottom line."

UPS shares also rose last week when the company raised its outlook while reporting second-quarter earnings.

Memphis, Tennessee-based FedEx also said it would restore its company match for 401(k) plans effective January 1, another sign of confidence, Sterling noted.

"We continue to like both FedEx and UPS as we see strong leverage to volume growth amidst a more stable pricing environment," Deutsche Bank analyst Justin Yagerman wrote in a note to clients. He has a "buy" on FedEx as well.

FedEx shares were up 5.7 percent at $83.46 in midday New York Stock Exchange trading, while UPS gained 1.8 percent to $64.82.

(Reporting by Helen Chernikoff, editing by Gerald E. McCormick and Lisa Von Ahn)

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