FedEx (FDX) Stock Soars on Ackman Speculation, Lawsuit Settlement
Shares of FedEx Corp. (FDX) closed up +4.32 or +4.37 percent on Tuesday, after speculation the company was an investment possibility for William Ackman's Pershing Square Capital Management LP. Volume in the stock was unusually heavy for FedEx, with more than 11 million shares traded, over six times the stock's normal daily trading volume. Also released on Tuesday was news that FedEx had agreed to settle litigation over claims the company was "systematically overcharging" its customers.
FedEx was allegedly charging for deliveries to government offices and businesses at the higher residential rate. Daily Chart
Memphis, Tennessee based FedEx Corporation is a worldwide delivery and courier service company, which had revenues of $42.7 billion last year. Tuesday's sharp rise in FedEx stock came after a letter dated July 8th from hedge fund manager Bill Ackman to investors, in which he disclosed that his $12 billion Pershing Square Capital Management fund was ready to invest as much as $1 billion in an unnamed company. The letter, seen by Reuters stated that, "Because of confidentiality considerations, it is not prudent for us to share the target company name with all of our 500+ investors". After successfully investing client funds in MacDonald's (MCD
) and Proctor & Gamble (PG
), Ackman asked investors to commit $1 million each by July 17 and wire the funds by July 19th. FedEx Corp., while not named seemed to fit the general profile valued at $33 billion, causing speculation and fueling the rise in its stock. Back in Memphis, FedEx agreed to settle a lawsuit in U.S. District Court, the case, Gokare PC v. Federal Express Corp., 11-cv-02131, claimed that FedEx had overcharged $3 a package on tens of thousands of packages delivered to commercial and government clients. According to a filing made on Monday, a preliminary settlement approval hearing was set for July 23rd with terms of the agreement not disclosed in the filing. Steven Rosenwaller, representing the plaintiffs stated that, "The details will be released when we move for preliminary approval." Plaintiffs moved to proceed on behalf of all of clients of FedEx overcharged by its FedEx services unit after August of 2008. FedEx charged residential rates to a number of businesses and government offices, nevertheless, the company denied the allegations, saying clients could have challenged the charges according to filings. After FedEx stock dropped eight percent after announcing better than expected fourth quarter earnings last month. The company posted $11.4 billion in revenue, a four percent gain over the same period a year ago. Nevertheless, operating income fell 41 percent, precipitating the stock's decline. FedEx stock traded as high as $109 in mid-March, with a PE of 21 and EPS of 4.9, the company's stats look solid despite the drop in operating income. With speculation on a potential investor, the company may opt for buying some of its own stock, which could see FedEx make a new high. The next earnings report is for September 18th. Other News About FDX FedEx Delivers Strong Q4 Earnings, Tops Expectations
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Published on Jul 10, 2013
By Jay Hawk