Gas prices are hitting record highs, and consumers are feeling the pinch. You can count me in as one who is limiting my driving and seriously considering trading my gas-chugging V8 for a diesel-driven Volkswagen or a Vespa scooter. Even Dean Kamen's Segway Human Transporter is more appealing than $50-a-pop fill-ups.
Consumers aren't the only ones looking forward to the hydrogen energy days of the future. While higher prices are good news for highflying Valero Energy
A year ago we were paying $1.22 less per gallon. These are real dollars, and for a fuel-dependent enterprise like FedEx, we can see the effects of these surging costs by looking at the past five fiscal years of fuel costs as a percentage of revenues. In fiscal years 2001 through 2004, the average was 4.5%. In fiscal 2005 fuel costs as a percentage of revenues jumped to 6.1%.
To mitigate these costs, FedEx is passing some on to consumers in the form of a fuel surcharge. However, its freight division will still take a hit, as it recently announced that it will limit the surcharge to "not exceed the most current pre-hurricane levels for the next 30 days."
You can see why its stock has been under pressure. Much like competitor UPS
FedEx expects to earn an estimated $5.20 to $5.45 per share for this fiscal year. At the recent $79 to $80 price range, shares now trade at 15 times 2006 estimated earnings. Compared to its most recent price-to-earnings (P/E) average, this is awfully low. In fiscal years 2003 through 2005, its stock traded at a P/E of around 22. Today it trades at 32% below this average. The question prospective buyers will be asking is: Is this multiple low enough?
One thing is for certain: Shopping via the Web is here to stay, and shippers like FedEx stand to benefit. From shoe giant Zappos.com to bidders on eBay
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.