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UPS vs. FedEx: Which Company Is Currently a Better Buy?
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When thinking about parcel delivery and logistics, two companies can typically come to mind – United Parcel Service (UPS - Free Report) and FedEx (FDX - Free Report) . The two companies have evolved into two established market names and have become two of the globe’s most famous shipping and logistics companies.
Seemingly at every turn, we see their delivery trucks dropping off packages and riding around everywhere. Combined, the two companies account for a vast majority of all parcels delivered.
However, with similar business operations, it can be challenging to understand which company would be a better investment moving forward. The chart below illustrates both companies’ share performance over the last year while blending in the S&P 500 as a benchmark.
Image Source: Zacks Investment Research
As we can see, FedEx shares have had a much rougher stretch, with shares underperforming both UPS and the general market quite extensively.
Based on this data alone, one could conclude that UPS is the better investment, but there’s always more behind the curtain than just that. Additionally, past performance is not always indicative of future results.
Let’s take a deeper look into both companies and analyze a few key metrics of each to determine which company would provide a better bang for your buck in the long term.
United Parcel Service
United Parcel Service (UPS - Free Report) has been on a hot earnings streak, chaining together nine consecutive EPS beats dating back to June 2020. Over its last four quarters, the company sports an average EPS surprise in the double-digits of 10%, and in its latest quarter, UPS beat bottom-line estimates by a respectable 6.3%.
Analyzing bottom-line growth, the $3.15 per share earnings estimate for the upcoming quarter reflects a 3% expansion of the bottom-line from the year-ago quarter. Additionally, earnings are forecasted to grow 6% in FY22 and an additional 3% in FY23.
Pivoting to valuation, UPS sports a forward P/E ratio value of 14.4X, well below 2020 highs of 25.6X, and sitting attractively below the median of 16.7X over the last five years. Additionally, the value represents a deep 23% discount relative to the S&P 500’s forward earnings multiple of 18.6X.
Image Source: Zacks Investment Research
For investors who enjoy getting paid, UPS has that covered with its 3.3% annual dividend yield with a payout ratio sitting comfortably at 49% of earnings. Furthermore, the company has increased its dividend five times over the last five years, with a five-year annualized dividend growth rate of a notable 7%.
The yield is also notably higher than the S&P 500’s yield of 1.43%.
Image Source: Zacks Investment Research
United Parcel Service is a Zacks Rank #3 (Hold).
FedEx
Flipping the pages back a few years, FedEx (FDX - Free Report) acquired TNT Express in May 2016 in a deal valued at $4.8 billion. The acquisition was expected to spur growth across Europe, but the company’s integration has been complicated for FedEx and has ended up costing them millions. This has been a significant driver behind the poor share performance over the last year.
The company has struggled to exceed EPS estimates, with three of its last four quarterly results coming in below EPS expectations. Over the last four earnings releases, the company has an average EPS surprise slightly in the negative of -0.1%, and in its latest quarter, FDX missed bottom-line expectations by 2%.
Not all is bad, however. For the upcoming quarter, the $6.80 EPS estimate reflects a sizable 35% growth in earnings from the year-ago quarter. Additionally, the bottom line is expected to expand by a notable 36% for FY22 and an additional 10% in FY23.
FedEx currently has a 10.8X forward P/E ratio, nowhere near 2020 highs of 23.8X and well below the median of 13.8X over the last five years. Furthermore, the value represents a discount of 42% relative to the S&P 500’s forward earnings multiple of 18.6X.
Image Source: Zacks Investment Research
FedEx rewards its shareholders via its 1.35% annual dividend yield with a payout ratio sitting on the sustainable side of things at 16% of earnings. Over the last five years, the company has increased its dividend three times, with a five-year annualized dividend growth rate of 9.8%.
The dividend yield is just below that of the S&P 500’s.
Image Source: Zacks Investment Research
FedEx is a Zacks Rank #4 (Sell).
Bottom Line
After looking at both companies in a magnified way, I believe the stock that will provide investors with a higher level of returns is UPS. Here’s why – UPS has a higher dividend yield, more robust quarterly reports, and most importantly, a higher Zacks Rank.
Additionally, FedEx seems like it is being held down quite significantly with its acquisition of TNT Express – a deal that was supposed to spur growth, not stunt it. It’s been a major thorn in the side, and now former FedEx CEO Fred Smith left the company earlier this year, undoubtedly shaking up business operations even more.
UPS seems like the better bet for investors seeking exposure to transportation and logistics.
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UPS vs. FedEx: Which Company Is Currently a Better Buy?
When thinking about parcel delivery and logistics, two companies can typically come to mind – United Parcel Service (UPS - Free Report) and FedEx (FDX - Free Report) . The two companies have evolved into two established market names and have become two of the globe’s most famous shipping and logistics companies.
Seemingly at every turn, we see their delivery trucks dropping off packages and riding around everywhere. Combined, the two companies account for a vast majority of all parcels delivered.
However, with similar business operations, it can be challenging to understand which company would be a better investment moving forward. The chart below illustrates both companies’ share performance over the last year while blending in the S&P 500 as a benchmark.
Image Source: Zacks Investment Research
As we can see, FedEx shares have had a much rougher stretch, with shares underperforming both UPS and the general market quite extensively.
Based on this data alone, one could conclude that UPS is the better investment, but there’s always more behind the curtain than just that. Additionally, past performance is not always indicative of future results.
Let’s take a deeper look into both companies and analyze a few key metrics of each to determine which company would provide a better bang for your buck in the long term.
United Parcel Service
United Parcel Service (UPS - Free Report) has been on a hot earnings streak, chaining together nine consecutive EPS beats dating back to June 2020. Over its last four quarters, the company sports an average EPS surprise in the double-digits of 10%, and in its latest quarter, UPS beat bottom-line estimates by a respectable 6.3%.
Analyzing bottom-line growth, the $3.15 per share earnings estimate for the upcoming quarter reflects a 3% expansion of the bottom-line from the year-ago quarter. Additionally, earnings are forecasted to grow 6% in FY22 and an additional 3% in FY23.
Pivoting to valuation, UPS sports a forward P/E ratio value of 14.4X, well below 2020 highs of 25.6X, and sitting attractively below the median of 16.7X over the last five years. Additionally, the value represents a deep 23% discount relative to the S&P 500’s forward earnings multiple of 18.6X.
Image Source: Zacks Investment Research
For investors who enjoy getting paid, UPS has that covered with its 3.3% annual dividend yield with a payout ratio sitting comfortably at 49% of earnings. Furthermore, the company has increased its dividend five times over the last five years, with a five-year annualized dividend growth rate of a notable 7%.
The yield is also notably higher than the S&P 500’s yield of 1.43%.
Image Source: Zacks Investment Research
United Parcel Service is a Zacks Rank #3 (Hold).
FedEx
Flipping the pages back a few years, FedEx (FDX - Free Report) acquired TNT Express in May 2016 in a deal valued at $4.8 billion. The acquisition was expected to spur growth across Europe, but the company’s integration has been complicated for FedEx and has ended up costing them millions. This has been a significant driver behind the poor share performance over the last year.
The company has struggled to exceed EPS estimates, with three of its last four quarterly results coming in below EPS expectations. Over the last four earnings releases, the company has an average EPS surprise slightly in the negative of -0.1%, and in its latest quarter, FDX missed bottom-line expectations by 2%.
Not all is bad, however. For the upcoming quarter, the $6.80 EPS estimate reflects a sizable 35% growth in earnings from the year-ago quarter. Additionally, the bottom line is expected to expand by a notable 36% for FY22 and an additional 10% in FY23.
FedEx currently has a 10.8X forward P/E ratio, nowhere near 2020 highs of 23.8X and well below the median of 13.8X over the last five years. Furthermore, the value represents a discount of 42% relative to the S&P 500’s forward earnings multiple of 18.6X.
Image Source: Zacks Investment Research
FedEx rewards its shareholders via its 1.35% annual dividend yield with a payout ratio sitting on the sustainable side of things at 16% of earnings. Over the last five years, the company has increased its dividend three times, with a five-year annualized dividend growth rate of 9.8%.
The dividend yield is just below that of the S&P 500’s.
Image Source: Zacks Investment Research
FedEx is a Zacks Rank #4 (Sell).
Bottom Line
After looking at both companies in a magnified way, I believe the stock that will provide investors with a higher level of returns is UPS. Here’s why – UPS has a higher dividend yield, more robust quarterly reports, and most importantly, a higher Zacks Rank.
Additionally, FedEx seems like it is being held down quite significantly with its acquisition of TNT Express – a deal that was supposed to spur growth, not stunt it. It’s been a major thorn in the side, and now former FedEx CEO Fred Smith left the company earlier this year, undoubtedly shaking up business operations even more.
UPS seems like the better bet for investors seeking exposure to transportation and logistics.