Amid broader recent market declines, logistic stalwarts UPS (UPS, Financial) and FedEx (FDX, Financial) did not escape the bloodbath. UPS has touched its lowest point again in a year while FedEx is at its lowest since April 2017.
Not so long ago, both logistic companies won praise for consecutive earnings beats prior to the recent quarter. Recent news of Amazon’s entry into the market via its Amazon Air business also did not help the overall sentiment.
In its recent quarter, FedEx failed to meet earnings expectations by 9.2% but still delivered an impressive 40% rise in profits year over year while UPS met expectations and delivered also a healthy 20% increase in its bottom line. UPS's share price has fallen 9% since its earnings announcement; FedEx shares have tumbled 26%.
Meanwhile, an analyst has estimated a 2-10% revenue loss for both companies once Amazon gains traction in the coming years.
Having a market share of nearly a little over half of the world’s express and courier service, both companies should still be able to continue to keep most of their share once Amazon enters the highly competitive (margins are at single-digit percentages) courier business.
There is also a good chance that both giants will be able to compete through raising their corresponding rates.
Coincidentally, both UPS and FedEx Shipping Rates will be raising their shipping rates by 4.9% in the coming weeks and heading into the New Year.
In the meantime, FedEx has a rating of "buy" with an average target price of $285.88 per share versus today’s $190.60 — nearly 50% upside — while UPS has a rating of overweight with a target of $124.95 versus today’s $102.53 — 22% upside.
Amazon definitely has made waves in retail and has led the world’s transition to web services. The mammoth’s entry into any industry helps weed out struggling businesses. Although store bankruptcies (Sears and Toys "R" Us) cannot solely be blamed on Amazon, more fundamentally sound companies retain their weight and even gain some more market share as a result.
This should indicate that UPS and FedEx will be in business and at the same time serve their shareholders' interests in the ensuing years.
Disclosure: Long FedEx.
Read more here:Â
Why UPS Could Recover After a Disappointing Year
Wally Weitz Exits UPS, Trims QVC Group, Wells Fargo Positions
Â
