FedEx and UPS
Show me the money has a post on the relative merits of FedEx (FDX) and UPS (UPS) two tickers we have followed for several years. With FDX due to report earnings before the market opens on Wednesday, the timing is propitious for a look at the names.
Our quick take: FDX has greater operating leverage and will continue to outperform as long as the economy continues to expand and trucking capacity remains tight. However, there are signs that both of those trends will reverse soon. Rising interest rates are putting pressure on the economy, particularly the consumer sector where mortgage equity extraction will make it tough to keep up spending levels in excess of earnings. Meanwhile, truck orders have risen dramatically, suggesting the potential for the capacity crunch in transportation to ease. When these happen, UPS stands to perform better than FDX because it has less operating leverage and will thus weather the downturn with a smaller drop in earnings.
Timing this switch is the difficult part. Investors can wait on the sidelines for evidence (a missed couple of days worth of relative performance is likely to be made up, as the trend should last several months or quarters) or continue to ride the momentum in FDX until the break occurs. Both of these companies are great and continuously improving. But there are different times at which owning one is better than owning the other.
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