FedEx may have lowered its growth projections despite a strong third quarter, but an analyst told CNBC that the outlook on the transport sector is positive “absent an oil price spike that’s not accompanied by an increase in demand.”
David Ross, a Stifel, Nicolaus, & Co. analyst, said that he likes the current tightness in oil supply and demand. Currently, companies are able to offset rising fuel costs by passing the charges on to the customers.
“Through the fuel surcharge programs that they have, they can generally recover increases in the costs of fuel,” Ross said, “The problem is if costs go too high.”
The question is: How high is too high? While some have speculated that gas prices could rise to as high as $5 to $8 a gallon, Ross says that prices will not reach that threshold. If they did, he said, it would cripple the U.S. economy.
“The old rule of thumb is fuel’s going to rise as high as it needs to slow the economy down to get supply and demand back into balance to control prices,” Ross said.
He still likes FedEx stock, because of its good domestic pricing power, and also recommends Ryder System.
“[Ryder] is really going to be a benefit of outsourcing. As people look to control their costs —rising equipment costs, rising fuel costs — Ryder’s an outsourcing solution that private fleets can use.”
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No disclosure information was immediately available for David Ross or his employer.