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FedEx vs. UPS: What's the Better Buy?

FedEx FDX, a leader in global express delivery services, reported quarterly results yesterday after the market’s close. It’s one of the earlier reports we’ll count in our Q3 tally, with others such as Auto Zone and General Mills also reporting in recent days.

FedEx exceeded the Zacks Consensus Estimate by nearly 23% and posted year-over-year growth of more than 30%, with lower operating expenses helping drive the improvement. Quarterly revenue totaled $21.7 billion, a tick below expectations and slipping 6% from the year-ago period.

Operating income climbed 25% from the year-ago period, with cost reductions and other key initiatives providing meaningful tailwinds. Still, it’s worth noting that the company has touched on ongoing demand weakness, which negatively impacted the quarter’s results.

The company’s DRIVE program has also been delivering benefits and is expected to continue; FedEx expects permanent cost reductions of $1.8 billion from the transformative program, again helping offset recent demand weakness and deliver improved profitability.

The market reacted highly favorably to the print, with FDX shares seeing notable buying pressure following the release. A peer, United Parcel Service UPS, also saw modest buying pressure in response to the results.

Given the better-than-expected print, it raises a valid question – which company, FedEx or United Parcel Service, currently looks like a better buy? Let’s take a closer look at a few characteristics of each.

FedEx vs. United Parcel Service

UPS, a current Zacks Rank #4 (Sell), has seen its near-term earnings outlook shift negatively across all timeframes, with analysts in full agreement. On the contrary, FedEx is a current Zacks Rank #3 (Hold), with positive revisions hitting the tape for its current and next fiscal years.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

And when it comes to growth, FedEx is the clear winner – FDX’s earnings are forecasted to climb 16% in its current year (FY24) and an additional 22% in FY25, whereas United Parcel Service’s earnings are forecasted to take a 27% hit in its current year before returning back to growth in FY24.

Regarding valuation, FDX’s current 14.4X forward earnings multiple is beneath UPS’ current 16.7X, with both values residing below their respective five-year medians. FDX sports a Style Score of “A” for Value, whereas UPS carries a “B.”

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

FedEx has also been more consistent with its quarterly results, exceeding the Zacks Consensus EPS Estimate by an average of 17% across its last four releases compared to UPS’ 2%.

As shown below, better-than-expected quarterly results have driven FDX's outperformance in 2023, regularly boosting shares post-earnings.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Bottom Line

FedEx posted results that impressed the market, with shares gaining roughly 5% following the release. Lowered costs, thanks to successful transformative initiatives, drove the better-than-expected results, with the company’s profitability improving nicely.

And when pitting FedEx FDX against its peer, United Parcel Service UPS, it appears that FDX shares appear to be the better option. UPS has seen its earnings outlook shift negatively over the recent months, hasn’t seen positive reactions to quarterly results, and is expected to witness a growth slowdown in its current year.

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