Seems this analyst likes what FedEx is doing. Not so much for UPS (protect the small package....protect the small package......)
Fedex, UPS Rise: Dahlman Prefers FDX (Updated) - Stocks To Watch Today - Barrons.com
By Tiernan Ray
Shares of Fedex (FDX) and United Parcel Service (UPS) are both higher this afternoon after Dahlman Rose analyst Jason Seidl iniated coverage of the two stocks with a “Buy” rating on Fedex and a $97 price target and a “Hold” rating on UPS.
Fedex shares may face pressure “in the near term” from uncertainty about global economic recovery, writes Seidl, but the stock, trading at just 14 times 2011 EPS estimates, is cheaper than its 10-year P/E historical average of 19 times.
The key, in Seidl’s view, to Fedex seems to be the focus of capital investment on the company’s International Priority service, where profit margin is double what it is in domestic U.S. delivery. This plays to the increased international activity evident in the U.S.’s widening trade gap, which is contributing measurably to what GDP growth there is out there.
Boeing’s (BA) 777 planes, which Fedex is adding, will help give Fedex a boost from lower fuel costs, Seidl believes.
In the ground freight segment, Fedex continues to gain share, Seidl observes. Moreover, the exit of DHL last year from the U.S. ground business, leaving UPS and Fedex in duopoly, continues to pay dividends that are not fully appreciated by investors, Seidl argues.
As far as obstacles, Seidl notes that Fedex’s fear of the proposed Federal Aviation Administration “reauthorization bill,” which would give unions more power, has faded, wiith the Senate looking less likely to pass the bill, and unions in various states being dealt set-backs in court.
As for the “less-than-truckload,” or LTL, trucking business, Fedex dominates with 12% of the market, Seidl notes. He hopes Fedex won’t “flirt” with attempts it made last year to force trucker YRC Worldwide (YRCW) out of business by pushing rates way, way down.
As for UPS, it’s also, like Fedex, historically cheap, at 16 times 2011 EPS projections, versus an average in the early part of the last decade of 25 times earnings. But multiples have contracted to 16 to 19 times earnings in recent years, so he doesn’t see enough upside to merit buying the shares.
Seidl notes the company has spent $2.4 billion on acquisitions, and suggests UPS may be looking for still more purchases to increase its international business. He also notes the company has $5.6 billion left in its current share repurchase authorization.
Today, Fedex shares are up 61 cents, or 0.8%, at $79.36, while UPS is up 40 cents, or 0.6%, at $63.75.
Update: Given the interest by some readers, I thought I’d note brief remarks by Seidl in the note, though I would caution they are mentioned in passing and may not represent fully Seidl’s views on YRC. In his note today on Fedex, Seidl ventures the following:
While it appears that most carriers have given up on trying to push YRCW into the ditch, YRCW’s financial woes may resurface in 2011 (a year in which numerous deferred costs start to come back for the beleaguered unionized carrier).
Seidl makes no mention of YRC in his note on UPS.