A Contrarian Take on Airfreight Stocks

Masam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

2012 was a disappointing year for most of the transportation companies. This is a norm in the recessionary times where low economic activity leads to lesser transportation of goods. Similarly, it was not an inspiring year for airfreight companies as well.


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United Parcel Service (NYSE: UPS) and Expeditors International of Washington (NASDAQ: EXPD) both showed miserable returns for the year. However, FedEx (NYSE: FDX) remained a hot topic among the investors given its solid transition from overnight delivery service to ground service (regular mail service).

What to Expect in 2013?

The sell-side expects an improving 2013. Moreover, it expects the airfreight companies to meet the Street’s estimates.

Given that several key data points out of Asia have recently improved (HACTL, PACTL, and Chinese port throughput), the Street commentary on 2013 should be incrementally more positive than the tepid guidance provided in the previous quarterly reports.

Expeditors International: The Street expects the company to post a revenue of $1.51 billion and a 4Q EPS of $0.43. EXPD has missed consensus EPS expectations in five of the last six quarters but the reaction in the shares to more recent misses has been more muted, with shares even trading higher following the 4% EPS miss in 3Q. I believe that investors will once again value the shares based more on forward expectations and early cycle freight data (such as China exports and Asian airfreight data) instead of backward looking results.

UPS: The company is expected to post a quarterly revenue of 14.43 billion. A performance in line with analysts’ estimates will mean a meager gain of 1.8% YoY. An EPS estimate of $1.38 assumes a gain of 84% YoY. This gain does not seem to be a surprise given massive restructuring at operational level. The Street believes that UPS signaled a bottom in Asia freight in 3Q12 and the company will soon benefit from the rebound in global trade that is expected in 2013. The company is expected to make additional capital available for larger share buybacks in 2013 than previously expected. Let’s see what the company has to tell its investors in its earnings release on Jan. 31.

FedEx: The acceleration in global airfreight growth will lead to a solid EPS beat when it reports FY3Q results in March. Goldman Sachs expects a FY3Q EPS estimate of $1.49, which is well above the current consensus estimates of $1.40. It believes that the investors have overlooked the company’s solid performance last quarter ex-items ($1.50 ex-Sandy vs. $1.41 FY2Q consensus). It also expects FedEx to top numbers handily when it reports in March on a 5.6% increase in revenue and stable margins at 6.9% (-20bp yoy).

Foolish Bottom-Line

2013 might see a turnaround in the airfreight services as emerging economies like China and Hong Kong witness an accelerated growth in their GDPs. In fact, some of that effect might mean solid results for these companies in the currently ongoing earnings season. 

AnalystX has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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