Transportation companies are the engines of the economy, ensuring that producers can get their goods to companies and consumers on demand. But as the economy slows down and corporate earnings decelerate, less goods will be need to be delivered to companies and consumers. One only needs to look at FedEx and UPS as a great barometer for the transportation sector.
Last week, FedEx announced their quarterly earnings yesterday, missed on earnings and profits and warned Wall Street by slashing their 2020 profit outlook by $11/share, 25% lower than expectations. FedEx blamed a slowing economy due to the US-China trade tariff. But during this earnings call, they also acknowledged Amazon as a threat, which was a complete 180 from 10 months ago.
On June 30th, FedEx let its U.S. Express contract with Amazon. Some experts think what was FedEx’s lose was UPS’s gain as the volume has to be picked up by someone. According to Morgan Stanley, Amazon makes up about 10% of revenue and 15% to 20% of volume at UPS.
Usually birds of a feather, flock together, but that hasn’t been the case for FedEx and UPS recently, exhibit A being their stock price (UPS in purple).
So does that mean UPS is a buy?
UPS’s business has been seeing marginally negative impacts from global economic slowdowns in its international segment, but it was more than made up for with domestic sales. The company has been able to consistently grow its business even in the face of trade conflicts and economic concern but considering that FedEx’s earnings covered 2 more months than UPS’s could imply negative results in UPS’s upcoming Q3 earnings. Currently, analysts are expecting UPS to grow its topline by 3% and 4% for 2019 and 2020 respectively while also improving net margins.
Now what do you think, is UPS a buy?
The iShares Dow Jones Transportation, IYT, is exchange-traded fund that is highly correlated to the Dow Jones Transportation Average. The index includes companies within the trains, planes and autos.
So again, I will ask you, is UPS a buy? The chart suggests UPS isn’t a buy as price is within the monthly supply at $122 and thus the risks is to the downside…so I guess birds of a feather really do flock together.
This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.