United Parcel Service, Inc. (UPS - Analyst Report) announced the expansion of UPS Worldwide Expedited service to cover more than 220 countries. UPS Worldwide Expedited includes air service for international shipments and provides delivery within two-to-five working days. This would facilitate UPS’ customers with cost effective freight solutions across continents.
Given the slackness in the economy, the company foresees continued yield pressure due to the changing business mix, resulting from customer shift from premium products to cost effective logistics solutions. As a result, we see the expansion of UPS Worldwide Expedited as a strategic move to gain from the current market trends. This is a more economical solution compared to other international services such as Worldwide Express. Moreover, the expansion of these services on a global platform adds opportunities for revenue generation even in a volatile market such as UPS’ home turf.
Health care business is another key market that UPS is keen on investing in. UPS is set to tap opportunities in this rapidly expanding market by establishing various distribution facilities specially dedicated to health care in key markets like Singapore, the Netherlands, Canada, Latin America, Australia and the U.S.
The company sees other opportunities in emerging markets like China, India, Japan and Brazil. As a result, United Parcel Service extended its 8-year long partnership in 2011 with pharma company Merck & Co. Inc. (MRK - Analyst Report) to expand its distribution and logistics services to certain Asian and Latin American markets. In 2012, the company acquired Italian pharma logistics provider Pieffe Group to enhance its health care distribution networks in North and South America, Europe and Asia.
However, we remain concerned about volatile economic conditions that continue to restrict market demand. Further, the company is also exposed to unionized workforce and intense competition from giants like FedEx Corporation (FDX - Analyst Report).
Deutsche Post AG (DPSGY - Snapshot Report), with a Zacks Rank #1 (Strong Buy), is another stock we suggest considering in this sector.