To state it bluntly, UPS seemingly will always play 2nd fiddle to FDX. Sure, we're the larger entity and pay a much better dividend in a yield focused investment environment. What we don't do well is addressing the "profile" things that the investing community is looking for. A common theme for those companies that have reported recently was cost cutting initiatives. Beyond internal efficiency metrics that are rarely appreciated by the investing public, there was no big splash in that regard except for an enhanced buyback pronouncement- hardly the topic of big share movement. By direct comparison, FDX recognized that investors needed to see that management had recognized that profitability was constricting and active steps were needed to address that trend. Thus their $1.6B cost cutting initiative. Wisely, FDX sat back and observed as our "doomed to fail' attempt at the TNT acquisition went up in flames causing our write-down of nearly a quarter billion not to mention the need to reconstitute our acquisition strategy. So, in short FDX is sailing along towards its all time highs of 2007. Its strategy of smaller, more easily integrated acquisitions has proven effective. Its use of independent contractors seems to have been vindicated. The investment community seems to have accepted their growth prospects over the modest dividend payout. Meanwhile, here's a few of our headwinds. 1) an on-going pension drag due to a large obligation and a low interest rate environment; 2) a union workforce with a major contract upgrade looming; 3) 3X the number of shares outstanding compared to FDX.
From an investor's viewpoint, it seems we need to "P/R optimize" so to speak. Focus on and talk our acquisition intentions. Share buybacks are stale and unimaginative while unfortunately appropriate when you have so many shares outstanding. But buybacks alone do not appeal when such an action step indicates no better use of the available cash. Make a statement by announcing a dividend increase exceeding 10%. Mention it's for the loyal UPS employees and retirees who have made the company what is today. Talk about a multi-year plan that clearly offers up a vision of our future. All this will be a departure from the usual UPS approach of cautious forward looking advice. If we don't feel compelled to recognize our P/R shortcomings and appreciate what FDX does well, we're destined to be the investor's 2nd choice. Bank of America upgraded FDX today with a $122 target. Meanwhile, after a lackluster CC last week, a number of analysts have downgraded us. I think some of the thoughts from this posting are the obvious reasons.
2 analysts see things quite differently- what a surprise. CITI (IMHO one of the bad actors in the industry) drops us from buy to neutral. Meanwhile, over at Sterne Agee they see this 2013 per share guidance thing as simply an accounting issue and place a $105 target on shares. Much as I'd like to think $105 is possible, such a target takes away from a firm's credibility. I mean that's about a 22% upside move in 12 months with no specific catalyst???
Love the announcement about expanding our healthcare logistics capabilities. Organic growth and small-scale, easily assimilated strategic acquisitions will prove to be the most favorable approach going forward. So, we'll probably gain some more Post Office contracted business and we're looking at growing our healthcare and ocean transport business. Seems like Asia and Latin America need some real attention as we real constitute our growth vision.