Can These Stocks Deliver profits?

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

When we want to ship a package there are only a few options to choose. One of those options is the United States Postal Service, or USPS; an affordable way for those people who don't need to deliver their packages quickly, and want cheaper standard shipping options. But the USPS has seen some problems in funding from the government, and people prefer to use other shipping service methods. 

Two of these shipping services that have seen huge demand are Federal Express (NYSE: FDX) and United Parcel Service (NYSE: UPS). Both of these companies seem to be better choices for getting packages to consumers quicker than the USPS. The downside is that they charge more, and even though you get an estimated delivery date it is not always accurate. 

UPS is struggling

The world economy is currently sluggish, despite the Dow Jones Average continuing to climb to new highs, and UPS has stated that 2013 will be a slow year due to economic uncertainty. UPS has lowered its 2013 earnings guidance between to $4.80 to $5.06 per share. While still good in a sluggish economy, that doesn't compare well with Wall Street analysts' predictions. The analysts predicted full year 2013 guidance of $5.16 per share. 

One thing to note is that these shipping services companies act as a gauge for the economy. With UPS lowering its guidance it seems that growth will either be stagnant, or drift down towards the end of this year. UPS also struggled in another way when it tried to acquire TNT Express, a European shipping service. As we have come to find out this deal collapsed because Europe anti-trust regulators said they would veto the deal no matter what. 

UPS reported earnings on April 25, 2013 that beat analysts expectations on earnings per share, but revenue came in light. The EPS came in at $1.08 per share, with revenue of $13.43 billion. The EPS estimate by analysts was for $1.04 per share on revenue of $13.46 billion. So what caused the downturn in revenues? As mentioned before, UPS sees a sluggish economy in the coming months, and it will show on their next quarter earnings report. The earnings by UPS were not the best, but at the same time at least the economy didn't hurt them too badly on the top line. The economy may rebound in the coming months, and the company may boost its guidance in the future.

FedEx with its problems

Unlike UPS, FedEx relies on revenues coming from the international markets. So when it came to earnings, FedEx should have expected that their earnings were going to slow down significantly. One contributing factor for the weakness was that customers chose to go with less expensive shipping methods, and that hurt FedEx with its revenue for the quarter. 

FedEx says that it has decided to cut back on its Asian exposure, and will concentrate on changing the way it handles its low yielding shipping traffic. One good advantage that FedEx has over UPS is that FedEx had won a seven year contract with the USPS, which is estimated to be worth around $10 billion. 

The economy in possible rebound mode

The stock market has continued its upward trend, but the economy may recover soon. I don't see monetary easing stopping anytime soon; after all, even the international markets are doing their own quantitative easing these days. 

The economy has seen some recovery, so there may be hope yet for both UPS and FedEx. One company that can improve on an economic rebound is Lennar (NYSE: LEN), which surged on good earnings. The surge that Lennar saw was on the back of the highest increase in revenue since back in 2007. The company reported $0.26 per share on revenue of $989.9 million, compared to analysts only expecting earnings per share of $0.15 on revenue of $898 million. The company has seen its stock jump up over 242.38% over the last 5 years.

Lennar has a market cap of $6.8 billion, and if the economy continues to show signs of recovery then the company will continue its upward trajectory. That said, Lennar has been doing so well in this economy that they claimed that its net income tripled in the first quarter.

Final thought

Both UPS and FedEx may deliver investors profits if the economy continues to show signs of rebound over the next few months. If you're a long term investor at heart, these stocks can deliver profits for years to come. 

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Terry Chrisomalis has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. 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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