UPS, FedEx Route Internet Shopping Wave
UBS Analyst Says FedEx and UPS Can Deliver Stronger Returns From Internet Shopping

NEW YORK (AP) -- United Parcel Service Inc. and FedEx Corp. are poised to close the year with a bang and the express package shippers have the Internet to thank, according to an analyst from HSBC Securities.

While the trucking industry has endured a relatively disappointing peak shipping season -- hindered mostly by slowdowns in the automotive and construction industries -- UPS and FedEx stand to benefit from ongoing growth in Internet retailing.

Adam Hylan, an analyst at HBSC, said in a research note on Wednesday that a 19 percent surge in Internet shopping this year would help UPS and FedEx overcome weakness in their less-than-truckload businesses.

"The impact of any economic softening on package volume growth will be offset by continued strong growth in Internet shopping," Hylan said of the carriers, which have little exposure to the automotive and construction industries.

Atlanta-based UPS estimates that a third of its peak season work is business-to-consumer, which includes the more mature catalog mail order shopping segment, Hylan observed. And although FedEx doesn't break out its business-to-consumer numbers, the Memphis-based company expects daily ground volumes to improve by 12.5 percent over last year. FedEx forecast daily express volumes growing by 4 percent, Hylan noted.

Hylan rated FedEx "Overweight" with a target price of $135.

"We continue to believe that FedEx can prosper even with moderate economic growth," Hylan said, citing factors such as structural and yield growth along with the Internet shopping boom.

The analyst rates UPS "Neutral" with a target price of $80.

Hylan based his cautious outlook mostly on the company's domestic package business, which faces tough growth comparisons versus a robust 2005. The analyst also expressed concern over upcoming union talks, which could divert customers to FedEx.

Shares of UPS fell 33 cents to $78.81 in afternoon trading on the New York Stock Exchange. Share of FedEx added 93 cents at $118.52.