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UPS vs. FedEx: Which company is currently a better buy?

OWhen thinking of package delivery and logistics, two companies can usually come to mind: United Parcel Service UPS and FedEx FDX. Both companies have become two established market names and have become two of the most famous transport and logistics companies in the world.

Apparently, at every turn, we see their delivery trucks dropping off packages and driving everywhere. Together, the two companies account for the vast majority of all packages delivered.

However, with similar business operations, it can be difficult to understand which company would be a better investment moving forward. The chart below illustrates the performance of the two companies’ stocks over the past year while incorporating the S&P 500 as a benchmark.

Image source: Zacks Investment Research

As we can see, FedEx stocks had a much tougher time, with the stock underperforming both UPS and the broader market.

Based on this data alone, one might conclude that UPS is the best investment, but there is always more behind the curtain than that. Moreover, past performance is not always indicative of future results.

Let’s take a closer look at both companies and analyze a few key metrics from each to determine which company would give you the most bang for your buck in the long run.

United Parcel Service

United Parcel Service UPS has had a blistering earnings streak, stringing together nine consecutive EPS beats dating back to June 2020. In its past four quarters, the company sports an average double-digit EPS surprise of 10%, and in its most recent quarter, UPS beat earnings estimates by a respectable 6.3%.

Analyzing net income growth, the earnings per share estimate of $3.15 for the next quarter reflects a 3% expansion in net income from the prior year quarter. Additionally, earnings are expected to increase by 6% in FY22 and an additional 3% in FY23.

Pivoting on valuation, UPS is posting a forward C/E value of 14.4X, well below 2020 highs of 25.6X, and sitting attractively below the 16.7X median over the past few months. last five years. Additionally, the value represents a steep 23% discount to the S&P 500 forward earnings multiple of 18.6X.

Zacks Investment Research
Image source: Zacks Investment Research

For investors who like to get paid, UPS has what it takes with its annual dividend yield of 3.3% with a payout ratio sitting comfortably at 49% of earnings. Additionally, the company has increased its dividend five times in the past five years, with a five-year annualized dividend growth rate of a notable 7%.

The return is also significantly higher than the S&P 500 return of 1.43%.

Zacks Investment Research
Image source: Zacks Investment Research

United Parcel Service is a Zacks Rank #3 (Hold).

fedex

Flipping the pages back a few years, FedEx FDX acquired TNT Express in May 2016 in a deal valued at $4.8 billion. The acquisition was expected to drive growth across Europe, but integrating the company was complicated for FedEx and ended up costing them millions. This has been a major factor in the poor performance of equities over the past year.

The company has struggled to beat EPS estimates, with three of its last four quarterly results falling below EPS expectations. Over the past four earnings releases, the company has had a slightly negative average EPS of -0.1%, and in its most recent quarter, FDX missed earnings expectations by 2%.

It’s not all bad though. For the quarter ahead, the EPS estimate of $6.80 reflects a significant 35% growth in earnings over the prior year quarter. Additionally, net income is expected to increase by 36% for FY22 and an additional 10% for FY23.

FedEx currently has a forward P/E ratio of 10.8X, a far cry from 2020 highs of 23.8X and well below the 13.8X median over the past five years. Additionally, the value represents a 42% discount to the S&P 500 forward earnings multiple of 18.6X.

Zacks Investment Research
Image source: Zacks Investment Research

FedEx rewards its shareholders through its annual dividend yield of 1.35% with a sustainable payout ratio of 16% of earnings. Over the past 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.

Zacks Investment Research
Image source: Zacks Investment Research

FedEx is a #4 Zacks rank (sell).

Conclusion

After looking at both companies broadly, I think the stock that will provide investors with a higher level of return is UPS. Here’s why – UPS has a higher dividend yield, more robust quarterly reports and, most importantly, a higher Zacks ranking.

Additionally, FedEx appears to be held back quite significantly with its acquisition of TNT Express – a deal that was supposed to drive growth, not hinder it. It was a major thorn in the side, and now former FedEx CEO Fred Smith left the company earlier this year, undoubtedly upending business operations even further.

UPS appears to be the best bet for investors looking to gain exposure to transportation and logistics.

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United Parcel Service, Inc. (UPS): Free Inventory Analysis Report

FedEx Corporation (FDX): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.