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FedEx Expanding, UPS NOT?

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FedEx Expanding, UPS NOT?

Old 08-26-2010, 01:30 PM
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Default FedEx Expanding, UPS NOT?

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.
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Old 08-26-2010, 05:02 PM
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Originally Posted by JustUnderPar View Post
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.
I did some Commodities brokering in the early part of the decade until 2006 mostly in lumber since the housing market was booming. It was a hobby for me and made a nice bit of money too. I had seen the housing slowdown starting in late 2005. I sat in an analyst meeting, supposedly the most accurate analyst in the industry. He clearly said that this slowdown in the housing sector was minor and it would recover by the second quarter of 2006. I took my money and ran. Over 4 years later and there is still no signs of recovery.

There is a reason why the first for letters of ANALyst are ANAL.
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Old 09-14-2010, 02:00 PM
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In retrospect, that created a buying opportunity, as suggested by The Street on June 17. Late Tuesday morning, FedEx shares were trading at $85.49. By comparison, the S&P 500 Index opened at 1,114 on June 16 and trades today at 1,122.

For the year, FedEx shares are up only slightly from a 2010 opening price of $84.21. Shares in UPS traded shortly before noon Tuesday at $67.72, up from a 2010 opening price of $58.18. The S&P Index is flat for the year.

-- Written by Ted Reed in Charlotte, N.C.
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Old 09-15-2010, 03:48 AM
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Default On the backs of employees

4a2b, cash pension plans, no wonder we do so well ...................... all that money for growth and expansion while they crack the whips
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Old 09-15-2010, 04:00 AM
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Originally Posted by tennesseeflyboy View Post
4a2b, cash pension plans, no wonder we do so well ...................... all that money for growth and expansion while they crack the whips
How well are they using your money?
Return on equity can help investors determine how adeptly management gets the job done. This metric combines how well management is expanding profitability, managing assets, and using financial leverage, all in one ratio. While return on equity isn't foolproof -- managers can manipulate it with excessive leverage, for example -- it does an excellent job of suggesting how effective managers are, and how well they can generate high returns on investors' capital.

Here's a look at United Parcel Service's recent return on equity:



Despite difficult economic conditions, United Parcel Service managed to grow return on equity beyond its five-year average. Consistently increasing return on equity suggests that management is either adept at cutting costs and managing assets, or is moving the company into new high-return areas. In UPS' case the company took a large unusual items charge in 2007 that caused the extreme downward movement in return on equity. Overall, the company has done a good job of controlling operating expenses during the downturn. The company has managed to decrease operating expenses faster than its revenue declines, which has helped stabilize net income despite a large drop in revenue.

How productive are their workers?
Revenue per employee provides another way to gauge a CEO's effectiveness. If this metric is declining, the company might have a bloated organizational structure, or too many extra employees toiling away at new initiatives that just aren't working out. Either possibility would hint that management isn't effectively running the organization.





Source: Capital IQ, a division of Standard & Poor's.

As you can see, United Parcel Service's revenue per employee has moved below its five-year average. This might mean that the company's hiring too many people, or spending too much. To better see whether United Parcel Service's cost controls are actually deficient, let's compare the company to its peer group once again:

Company
2005
2007
2009
Last Year's Revenue Per Employee vs. 5-Year Average

United Parcel Service
$105
$117
$111
(2%)

FedEx (NYSE: FDX)
$138
$146
$150
2%

CH Robinson Worldwide (Nasdaq: CHRW)
$985
$998
$1,031
2%

Expeditors International of Washington (Nasdaq: EXPD)
$368
$425
$341
(14%)


Source: Capital IQ, a division of Standard & Poor's. Dollar figures in thousands.

Though United Parcel Service's revenue per employee has been declining, its relative performance versus its five-year revenue per employee still beats its peer group. However, UPS' performance sits a bit below direct competitor FedEx.

These are just a few of the factors we look for in a company's management. If you can find leaders who continually give shareholders high returns on their capital, and align their interests with yours, you've got a better chance to enjoy market-beating returns for the long haul.
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Old 09-15-2010, 04:04 AM
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Is UPS Spending Your Money Wisely?
By Jim Royal | More Articles
August 31, 2010 | Comments (0)

We'd all like to invest as successfully as the legendary Warren Buffett. He calculates return on invested capital (ROIC) to help determine whether a company has an economic moat -- the ability to earn returns on its money beyond that money's cost.

ROIC is perhaps the most important metric in value investing. By determining a company's ROIC, you can see how well it's using the cash you entrust to it, and whether it's actually creating value for you. Simply put, ROIC divides a company's operating profit by the amount of investment it took to get that profit:

ROIC = Net operating profit after taxes / Invested capital

This one-size-fits-all calculation cuts out many of the legal accounting tricks (such as excessive debt) that managers use to boost earnings numbers, and provides you with an apples-to-apples way to evaluate businesses, even across industries. The higher the ROIC, the more efficiently the company uses capital.

Ultimately, we're looking for companies that can invest their money at rates that are higher than the cost of capital, which for most businesses is from 8% to 12%. Ideally, we want to see ROIC greater than 12%, at minimum. We're also seeking a history of increasing returns, or at least steady returns, which indicate that the company's moat can withstand competitors' assaults.

Let's look at United Parcel Service (NYSE: UPS) and two of its industry peers to see how efficiently they use capital. Here are the ROIC figures for each company over several time periods:

Company
TTM
1 Year Ago
3 Years Ago
5 Years Ago

United Parcel Service
13%
11.5%
17.3%
16.6%

FedEx (NYSE: FDX)
6.8%
1.5%
11.6%
10.3%

Expeditors International of Washington (Nasdaq: EXPD)
37.1%
44.7%
39.1%
35.3%


Source: Capital IQ, a division of Standard & Poor's.

United Parcel Service has consistently produced nice ROIC, but is down more than four percentage points from three years ago. FedEx has declined more than three percentage points in the past five years and has consistently sat behind its major rival. Expeditors International, on the other hand, has regularly produced returns on invested capital well above our 12% threshold for attractiveness, and at least before the latest four quarters, the company had been able to consistently increase its ROIC, suggesting its competitive position was improving. The differences among these three are striking.

Businesses with consistently high ROIC are efficiently using capital. They can use their extra returns to buy back shares, further invest in their future success, or pay dividends to shareholders. (Warren Buffett especially likes that last part.)

To unearth more successful investments, dig a little deeper than the earnings headlines and check up on your companies' ROIC.
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Old 09-15-2010, 04:09 AM
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Dividends Aren't Enough: Transportation
By Jeremy Myers | More Articles
August 23, 2010 | Comments (0)

I love cash. As an investor, nothing makes me happier than a company that returns money to shareholders, rather than spending it recklessly on a CEO's pet projects or an ill-fated acquisition. Historically, investors have often looked at a stock's dividend yield to identify these shareholder-friendly enterprises. But I prefer a slightly different metric -- one proven to further maximize investor returns.

A 2007 study in The Journal of Finance suggests that investors should also factor net share repurchases into the equation, through a metric called the net payout ratio. According to the authors of the study, this ratio not only identifies companies that are paying back investors, but also predicts future equity returns better than the dividend yield.

Let's crunch the numbers
To find the net payout yield, start by adding up all the cash the company spends on both dividends and share buybacks. Next, subtract its share issuances. Finally, divide the resulting number by the company's current market cap.

The ratio that you end up with represents the percent of each invested dollar that a company is returning to shareholders. This simple calculation handily allows us to adjust for shares issued through employee stock options and other forms of shareholder dilution. Some companies will spend a lot of money buying back shares just to counteract the dilutive effect of their stock compensation programs, without creating any value for shareholders.

Here are the net payout yields for a few companies in the transportation industry:

Company
Net Payout Yield (TTM)
Dividend Payments (TTM)
Net Share Repurchases (TTM)
Market Cap

FedEx (NYSE: FDX)
0.2%
$138
($94)
$25,665

United Parcel Service (NYSE: UPS)
3.6%
$1,786
$570
$64,811

JB Hunt Transport Services (Nasdaq: JBHT)
4.5%
$58
$128
$4,151

Werner Enterprises (Nasdaq: WERN)
0.5%
$14
($7)
$1,533


Source: Capital IQ, a division of Standard & Poor's. Payout yield is author's calculation. All dollar figures in millions. TTM = trailing 12 months.

It's also interesting to look at the emphasis that each company puts on dividends versus stock buybacks:



How powerful is this payout?
Based on the analysis above, UPS and JB Hunt look like potential buys for investors searching the transportation industry for a stock with a solid net payout yield. As you can see from the data above, these companies have made a strong commitment to returning cash to shareholders.

Keep in mind that this data only looks at trailing-12-month numbers, so it does not correct for recent changes in a company's dividend or buyback policy. While dividends tend to remain fairly stable, share buybacks can vary substantially from year to year. Investors should also look at a company's dividend payout ratio to make sure the dividend is sustainable, and examine historical buyback patterns to ensure that the buybacks aren't a one-time event. If you can build a diversified portfolio with a few of these high-yielders, healthy returns -- and plenty of cash -- are likely to follow.
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Old 09-15-2010, 04:20 AM
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Show Me the Money, FedEx
By Seth Jayson | More Articles
July 22, 2010 | Comments (2)

Although headlines still spray earnings figures all over the media every day, many investors have moved past net earnings as a measure of a company's economic output. That's because earnings are very often less trustworthy than cash flow, since earnings are more open to manipulation based on dubious judgment calls.

Earnings' unreliability is one of the reasons Foolish investors often flip straight past the income statement to eyeball the cash flow statement. In general, by taking a close look at the cash moving in and out of the business, you can better understand whether the last batch of earnings brought money into the company, or merely disguised a cash gusher with a pretty headline.

Calling all cash flows
It's worth checking up on your companies' free cash flow once a quarter or so, to see whether it bears any relationship to the net income in the headlines. That brings us to FedEx (NYSE: FDX), which has produced $322 million in FCF over the trailing 12 months, compared to $1,184 million in net income.



That means FedEx turned 1% of its revenues into FCF. That's none too impressive. But, it always pays to compare that figure to sector and industry peers and competitors, to see how your company stacks up.

Company
Revenue (TTM)
FCF (TTM)
FCF Margin (TTM)

United Parcel Service (NYSE: UPS)
$46,087
$3,135
7%

OfficeMax (NYSE: OMX)
$7,218
$383
5%

CH Robinson Worldwide (Nasdaq: CHRW)
$7,964
$291
4%

Con-way (NYSE: CNW)
$4,468
$140
3%


It's pretty rough when your FCF comes in below regular truckers, below a peer office-services company like OfficeMax, and far below your primary competitor, UPS. I've been concerned with cash flows at FedEx for a while.

All cash is not equal
Unfortunately, the cash flow statement isn't immune from nonsense, either. That's why it pays to take a close look at the components of cash flow from operations, to make sure that the cash comes from high-quality sources. They need to be real and replicable in the upcoming quarters, rather than being offset by continual cash outflows that don't appear on the income statement (such as major capital expenditures). For instance, cash flow based on cash net income and adjustments for non-cash income-statement expenses (like depreciation) is generally favorable. An increase in cash flow based on stiffing your suppliers (by increasing accounts payable) or shortchanging Uncle Sam on taxes will come back to bite investors later. The same goes for decreasing accounts receivable. This is good to see, but it's ordinary in recessionary times, and you can only increase collections so much.

So, how does the cash flow at FedEx Corp. look? Take a peek at the chart below, which flags questionable cash flow sources with a red bar.



When I say "questionable cash flow sources," I mean line items such as changes in taxes payable, tax benefits from stock options, and asset sales, among others. That's not to say that companies booking these as sources of cash flow are weak, or are engaging in any sort of wrongdoing, or that everything that comes up questionable in my graph is automatically bad news. But whenever a company is getting more than, say, 10% of its cash from operations from these dubious sources, I feel obliged to crack open the filings and dig even deeper, to make sure I'm in touch with its true cash profitability.

With questionable cash sources comprising 18% of the cash flow from operations for FedEx in the trailing 12 months (and much more in fiscal years past), I think it's time to do a little more digging. What's there isn't pretty. Not only is FedEx's FCF low, it's lacking quality, with boosts from suspect sources such as deferred tax changes, bad debt provisions and write-offs (which don't eat cash now, but did eat cash when they were taken on), as well as our old friend, adjustments for stock-based compensation.
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Old 09-15-2010, 06:01 AM
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So Mr. Soymilk,

Why does UPS need to "level the Playing field" if it is much more dominant and efficient?

You want to have your cake and eat it too. For your dividend's sake I hope you succeed because without change UPS looks like they're surely headed for failure (not really )
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Old 09-15-2010, 06:17 AM
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Originally Posted by Gunter View Post
So Mr. Soymilk,

Why does UPS need to "level the Playing field" if it is much more dominant and efficient?

You want to have your cake and eat it too. For your dividend's sake I hope you succeed because without change UPS looks like they're surely headed for failure
Gunt,

Same reason why UPS AND FDX needed to level the playing field in regards to both the Postal Service and DHL. Level is Level.

What do you mean "if"?????

My dividends sake fYI I own multiple FDX shares too.

Those articles are recent so according to the rest of the world out side of pilots it looks as if they are not headed for failure contrary to your axe to grind opinion.

Sounds like to other posts your having some issues over at FDX. Shame you don't have other union groups on property to help support your efforts.
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