UBS Expects Solid UPS Earnings, Says FedEx Express Biz Still Faces Overseas Challenges

UBS Securities said it expects solid fourth-quarter earnings from United Parcel Service, Inc. UPS when the package shipper reports next week, thanks to strong execution during the delivery company’s holiday season.

UBS is less bullish on competitor FedEx Corporation FDX, which the firm said continues to see headwinds in its Express package delivery business due to slow international markets. 

The Analyst

Analyst Thomas Wadewitz has a Buy rating on UPS with a price target of $112.

Wadewitz has a Neutral rating on FedEx with a $171 price target. 

UPS 

UPS reports fourth-quarter earnings on Jan. 31 and Wadewitz said he expects a solid earnings report and constructive 2019 outlook.

The slower growth in international package markets that’s hurting FedEx is also a headwind for UPS, along with a less favorable pension impact, the analyst said. 

Wadewitz tweaked his estimate for UPS' 2019 earnings per share a dime lower to $7.75 to reflect the pension issue and slower growth in international operating income. Most important to stock performance, he said, is UPS achieving incremental improvement in domestic package operating margins.

“Despite the potential 2019 headwinds, we continue to believe that UPS has a favorable multi-year story based on cost side/productivity gains from their network facility and technology investments, non-operating cost improvement from the Transformation program and a more aggressive approach from the management team to both cost and pricing." 

FedEx

FedEx doesn’t report earnings until March 19, but is coming off a disappointing December Q2 report that included a somewhat gloomy 2019 outlook and led analysts and investor to ask if the company will be able to make improvements in its TNT Express unit, Wadewitz said.

FedEx said at the time it was slashing its outlook based on a projection for generally slower international trade. 

FedEx attributes the Express business weakness to broad sluggishness in the package shipping environment in Europe and Asia, the analyst said, adding that the backdrop of soft or flat international airfreight could factor into a FedEx stock buyback decision. 

Price Action

UPS shares were up 0.87 percent at $100.57 at the time of publication Friday, while FedEx shares were 0.71-percent higher at $175.33. 

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