FedEx Corp likely will report strong fourth-quarter and full-year earnings growth on Wednesday, even as high fuel prices and a faltering economic recovery pose challenges.

The No. 2 package delivery company has been able to pass through higher costs via fuel surcharges and still has room to raise prices without major push-back from consumers, most analysts said.

Oil prices started to retreat from peaks late in the company's fourth quarter and could lessen cost pressures.

Edward Jones analysts sees mid-single-digit volume growth in the company's Express and Ground segments, which account for more than 80 percent of revenue. Analysts are keen to see, however, if consumers -- amid signs the economic rebound is stalling -- are opting for less expensive delivery options.

Nearly two years after the U.S. recession was declared over, financial market volatility has return on renewed talk about the potential for a double-dip recession. Analysts are eager for FedEx's view on global demand.

Fuel expenses likely topped $1 billion for the second quarter in a row, said Edward Jones analyst Matt Collins. Fleet updates to more fuel efficient aircraft will mitigate costs but will take several years to play out, he said.

We still see the economic recovery is continuing at a modest pace, while trade has tended to grow faster than GDP over time, a positive for FedEx, Collins said. We think there's still room for FedEx to increase prices.

Wall Street analysts forecast $1.72 per share profit, on average, for the fourth quarter ended May 31, up from $1.33 a year ago, according to Thomson Reuters I/B/E/S.

Full-year profit is seen at $4.90 a share compared with the company's $4.83 to $5.00 guidance. Analysts, on average, also forecast $6.49 per share profit for 2012.

Fourth-quarter revenue is seen rising to $10.42 billion from $9.43 billion a year earlier. Full-year revenue is seen at about $39.2 billion, up from $34.7 billion a year ago.

Memphis, Tennessee-based FedEx this month raised its quarterly dividend by one penny to 13 cents per share.

FedEx and No. 1 package delivery company United Parcel Service are considered economic bellwethers as they move a huge share of shipped goods.

FedEx handles goods in its trucks and planes equivalent to 4 percent of U.S. gross domestic product and 1.5 percent of global GDP.

We remain fundamentally bullish on shares of FedEx as international airfreight, FedEx's most profitable business, continues to show great strength and fuel has dipped from its highs, which will offset margin pressure, Avondale Partners wrote in a report.

FedEx Express in March launched non-stop Boeing 777 freighter flights between South Korea and its Memphis hub, citing a 35 percent annual jump to $39 billion of goods exported from the United States to South Korea last year.

The freight segment likely will return to profitability after combining its FedEx Freight and FedEx National LTL (less-than-truckload) operations, the company has said.

Morningstar analyst Keith Schoonmaker said such a turnaround in freight, which accounts for about 12 percent of revenue, would be significant as it has been profitable in just one quarter since the third quarter of 2009.

We consider shares of FedEx to be undervalued, he said, pegging a $112 per share target versus Tuesday's $89.13 close.

FedEx stock is down about 4 percent year-to-date, UPS is down 2.7 percent and the S&P 500 is up 3 percent.

On the other hand, while FedEx is getting more attractive following the recent pullback in the stock, it seems tough to own FedEx in a slowing economy as FY2012 consensus estimates assume more than 30 percent earnings growth, Wolfe Trahan analysts wrote. Thus, we believe FedEx management would be well served to provide initial FY12 guidance closer to our well-below consensus estimate of $5.75.

(Editing by Bernard Orr)

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