Logistics Stocks Soared After Key Updates; Time To Buy Or Sell?
The global economy has been hammered this year by the ravaging coronavirus. Many industrial stocks plummeted during the March sell-off, and have not fully recovered since. The global travel industry has also been at a standstill. But there are still opportunities in the market if we take a closer look. The logistics sector has not been immune to the current coronavirus crisis. But, it is performing relatively well compared to the broader market. For this reason, let’s dive in to see if FedEx (FDX Stock Report) is worth adding to your portfolio.
FedEx Stock Soared After Topping Earnings Estimates; Others Followed Suits
Shares of FedEx soared after a surge in health-equipment deliveries and an efficiency drive aimed at home deliveries propelled earnings beyond Wall Street’s expectations. The company easily beat fiscal Q4 estimates late Tuesday. This came after there’s an uptick in residential deliveries at FedEx Ground, intrans-Pacific, and charter flights at FedEx Express.
“The trends we experienced during the quarter validated, or rather, put an exclamation point on the importance of our strategic initiatives that directly address e-commerce,” FedEx Chief Operating Officer Raj Subramaniam said on a conference call with analysts. “In many ways, the macro trends accelerated to meet our existing strategy and what we expected to happen over a few years happened in a matter of a few months.”
FDX stock rose 4.21% during the regular session and gained 16% in the three months through Tuesday’s close. Shares of the delivery company United Parcel Service (UPS Stock Report) also rose 5% in after-hours trading. Such a move is likely inspired by FedEx’s gains.
FedEx Vs Ups: Which US Parcel Shipper Is A Better Bet?
Based on historical performance, FedEx appears to be more attractive than UPS. FedEx has seen higher average revenue growth of 9% compared to 5% for UPS between the years 2014 and 2019. UPS’s relative valuation is also higher with its P/E ratio standing at 15x with FedEx at 11x. Overall, it appears to me that FedEx stock could continue to outperform through the current health crisis. That’s considering that it is playing a critical role in shipments of medical health supplies.
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Strategic Partnership Between Microsoft and FedEx To Take on Amazon
FedEx has seen Amazon (AMZN Stock Report), which is also its customer, turn into a more potent logistics and delivery competitor. As such FedEx and Microsoft (MSFT Stock Report) announced a strategic alliance recently to improve shipping for commercial customers. This is a move aiming to contain Amazon’s advances.
The partnership will combine FedEx’s global logistics network with Microsoft’s AI and cloud expertise. The new service will give businesses real-time data to track packages. On top of that, it will also alert customers to things like floods and any clearance issues that could potentially affect the movement of goods.
Bottom Line
Looking ahead, FedEx said it has seen week-over-week improvement for business packages since the end of April. While FedEx has become a powerful player in the e-commerce shipping space, it remains a very competitive space. That’s especially true with former partner Amazon flexing its own shipping muscles. More importantly, investors will be more interested in learning how the shipping giant’s finances are holding up. Metrics like cash flow and operating margin moving forward will be able to provide some guidance during this trying time. The FDX stock performance from here will largely depend on how well the company is able to navigate through the crisis while staying relatively unscathed.
