Fed Ex or UPS: Better Decide Fast
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The shipping industry, by most accounts anyway, is back. October wasn’t pretty, but it appears the numbers for November are going to be very strong. Not surprising really since it’s not difficult to imagine more consumers shopping from the comfort of their home. eBay (NASDAQ: EBAY), Amazon (NASDAQ: AMZN) and other online retailers have confirmed that to be the case so far this Holiday season. And when they buy online, someone’s going to do the shipping.
Other than the U.S. Postal service and regional carriers, for investors wanting to take advantage of these good tidings there are two options; FedEx (NYSE: FDX) and UPS (NYSE: UPS). Each is intriguing in its own way.
FedEx recently announced they are expecting to handle over 17 million packages on Monday the 12th alone, which compares to 15.6 million last year. If this comes to fruition, it could be the biggest shipping day in the company’s history.
FDX will announce fiscal Q2 earnings on Thursday the 15th, which is always a bit scary for investors. If numbers don’t meet expectations the reaction will be swift. However, it’s expected the company will beat year-over-year earnings and revenue results. That, combined with what is looking like a solid start to Q3, is compelling to say the least.
It should be noted that FedEx has underperformed vs. their rival UPS so far in 2011. That has both good and bad connotations. On the one hand, a concern with UPS is what, if any upside it has left. This would lead investors to believe FedEx may be the better opportunity of the two. But hold on, there’s more.
With an almost $70 billion market cap and strong international diversification, there’s no doubt that UPS is the industry leader. And though many analysts and investors are treating UPS stock as though upside resistance should be expected, on paper at least it’s no more expensive than FDX. Both are trading with an almost identical P/E in the mid-17 range.
One notable exception between these two companies is the dividend. FedEx yields 0.60% compared to a 2.90% dividend yield for UPS shareholders. And there’s some merit to the idea of buying yield in a financially sound company in today’s low interest rate environment.
If you’re a bit more conservative, I’d lean toward taking that 2.90% yield UPS is offering in the near term. There is less upside growth as UPS continues trading near its 52-week high of $77 a share. The current share price stands at $72.45.
Feeling a bit frisky? If, as most believe, FedEx impresses during their earnings announcement on the 15th a quick pop may in the offing. There’s another upside to this option too. Even if a quick pop doesn’t materialize from the pending earnings announcement, with the way fiscal Q3 looks FedEx should generate a nice, relatively short-term return for investors either way.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.