Time To Buy FedEx Over UPS?

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Based on historical performance, FedEx (NYSE:FDX) appears to be attractive compared to UPS (NYSE:UPS) in the current crisis. The logistics sector has not been immune to the current coronavirus crisis, although logistics majors have fared better than the broader markets. FedEx has declined by close to -14% since early February after the WHO declared the Coronavirus a global health emergency, compared to a -4% decline for UPS stock. FedEx has seen higher average revenue growth of 9% compared to 5% for UPS between 2014 and 2019. Average annualized adjusted EPS growth for FedEx was also higher at 14% compared to 8% for UPS. Though UPS’ relative valuation is ahead of FedEx with its P/E multiple standing at 13x vs. 8x for FedEx. Overall, it appears that FedEx stock could potentially outperform through the current crisis, considering that it is also playing a critical role in shipments of coronavirus related supplies.

FedEx’s Revenues Should Hold Up Better Through This Crisis

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For both the companies, near term revenues could take a hit, due to lower shipments in the event of a global recession, as discretionary spending falls. Though FedEx over its recent quarterly earnings conference call stated that it expects a continued uptick in ground shipment revenues, as people stay at home and order required products online. The company’s management also stated that it is now flying in and out of China in line with its normal flight schedules. However, international packages will likely be impacted in the current quarter, especially to and from Europe.

View our complete dashboard analysis Is FedEx Expensive Or Cheap After A -15% Move Vs. -5% For UPS? for more details on how FedEx and UPS’ stock fared through the coronavirus crisis, their relative valuations, as well as their financial performance over the last few years. Parts of this analysis are summarized below.

CORONAVIRUS CRISIS: Since early February, FedEx Inc stock has declined -15% compared to -5% for UPS.

  • FedEx’s stock has declined by about 14% since early February, compared to 4% for UPS, after the WHO declared a global health emergency relating to coronavirus.
  • FedEx stock declined 3%, while UPS stock is up 4% since March 8th, as U.S. cases accelerated.

HISTORICAL PERFORMANCE: From 2009-2019 FedEx stock has grown at 0.5x the rate of UPS

  • FedEx stock went from $77 at the end of 2009 to $150 at the end of 2019, representing a change of 96%.
  • During the same time period, the United Parcel Service went from $42 to $116 representing a change of 175%.
  • This implies that Fedex stock grew at 0.5x the rate of United Parcel Service.
  • FedEx stock started declining in 2018, after Amazon’s own logistics business started impacting FedEx’s business. In 2019, FedEx and Amazon parted ways, while UPS still delivers for Amazon, and as a customer Amazon accounted for 12% of UPS’ total revenues in 2019.

ANALYSIS:

How do valuations for FedEx and UPS compare, based on the review of fundamentals?

  • P/E Ratio: Based on trailing 2019 P/E ratios, FDX stock looks cheaper compared to prior years and cheaper compared to UPS.
  • FedEx’s current P/E multiple (based on 2019 results) stands at about 8x, compared to about 13x for UPS.

Historical Revenue and EPS Growth: UPS stock looks slightly less attractive compared to FedEx.

  • Fedex 2014-19 annualized revenue growth of 9% is 2.3x that of the 2014-19 UPS’ annualized revenue growth rate of 4.9%.
  • Fedex 2014-19 annualized EPS growth of 14% is 1.8x that of the 2014-19 UPS’ annualized EPS growth rate of 8%.

Conclusion

  • Purely based on historical performance, FedEx appears to be more attractive compared to UPS in the current crisis. Both the companies’ stocks have been more resilient through the crisis, thus far, and FedEx could see a larger upside if the health crisis abates, considering its revenue and EPS growth has been higher than UPS. FedEx is less leveraged compared to UPS, and both the companies have enough cash from operations to manage their near term interest expenses in this time of crisis. Moreover, FedEx’s P/E ratio is lower compared to its own historical P/E ratio, as well as that of UPS.

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