In the ongoing battle among logistics companies on Wall Street, FedEx currently holds the upper hand. While United Parcel Service (UPS) faces rising expenses that may erode its advantage in terms of margins, FedEx is strategically cutting costs to maintain its lead.
According to HSBC analyst Parash Jain, who recently launched coverage of both companies, FedEx is the preferred option. He rates FedEx shares as a Buy and sets a price target of $330 per share. Jain highlights that FedEx aims to reduce costs by $6 billion by 2027. Even achieving a portion of this goal would significantly boost investor confidence. If FedEx were to improve its operating profit by $6 billion, its profit margins would be in close proximity to those of UPS, ranging from 12% to 13%.
On the other hand, UPS lacks the same potential for cost-related gains. Jain advises a Hold rating for UPS stock and sets a price target of $170. UPS must regain shipping volume lost due to customer concerns of potential strikes during the summer. Additionally, the company needs to offset higher wages agreed upon under a new five-year labor deal with the Teamsters. Management estimates a yearly rise of approximately 4% in labor costs over the contract’s lifespan. UPS faces a more challenging path, and Jain is eager to see if the company can maintain its profit guidance for 2023.
In premarket trading, FedEx stock rose by 0.9% to $268.86, while futures on the S&P 500 and Dow Jones Industrial Average experienced gains of around 0.5%. Meanwhile, UPS stock saw a 0.1% increase to $155.55.
Currently, 59% of analysts covering FedEx stock rate it as a Buy, slightly surpassing the average Buy-rating ratio for stocks in the S&P 500 of around 55%. The average analyst price target for FedEx shares is approximately $287 per share. As for UPS, approximately 52% of analysts covering the stock rate it as a Buy, with an average analyst price target of about $186 per share.
Over the past 12 months, FedEx stock has surged by about 75%, in an attempt to catch up to UPS, which performed exceptionally well during the pandemic. FedEx shares have risen by approximately 13% over the past five years, while UPS shares have experienced a growth of around 33%.