Up 30% In A Year Is FedEx Stock A Better Pick Over UPS?

Given its better prospects, we believe UPS stock (NYSE: UPS) is a better pick than its peer — FedEx stock (NYSE: FDX). UPS trades at a higher valuation multiple of 1.4x revenues vs. 0.7x for FedEx, due to its superior revenue growth, profitability, and financial position. There is more to the comparison, and in the sections below, we discuss why we believe UPS will offer better returns than FDX in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation, in an interactive dashboard analysis of FedEx vs. UPS: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

Looking at stock returns, FDX stock has seen little change, moving slightly from levels of $260 in early January 2021 to around $255 now, while UPS stock has seen little change, moving slightly from levels of $170 to around $155 over the same period. This compares with an increase of about 35% for the S&P 500 over this roughly three-year period.

Overall, the performance of FDX and UPS stocks with respect to the index has been lackluster. Returns for FDX stock were 0% in 2021, -33% in 2022, and 46% in 2023, while the returns for UPS stock were 27% in 2021, -19% in 2022, and -10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that FDX underperformed the S&P in 2021 and 2022, and UPS underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UPS face a similar situation as it did in 2023, and underperform the S&P over the next 12 months — or will it see a strong jump? While we expect both FDX and UPS to see small gains, the latter will likely fare better between the two.

1. UPS’ Revenue Growth Is Slightly Better

• UPS’ 11% average annual growth rate in the last three years is marginally better than 10% for FedEx.
• The revenue growth for FedEx was driven by e-commerce growth and better price realization.
• However, the sales growth has slowed lately due to a weakening consumer spending environment.
• For perspective, FedEx saw its average daily package volume decline by 10%, 7%, and 11% for its Express, Ground, and Freight segments in 2023 (fiscal ends in May), respectively.
• A similar trend was seen for UPS, with its ground average daily package volume falling by 2.3% in 2022, and further by 6.9% in 2023.
• If we look at the last twelve months, FedEx has seen its sales decline by 6.5%, while UPS’ sales fell by 7.9%.
• Our FedEx Revenue Comparison and UPS Revenue Comparison dashboards provide more insight into the companies’ sales.
• Both companies are likely to see their top-line expand at mid-single-digit average rates in the next three years.

2. UPS Is More Profitable

• FedEx’s operating margin has risen from 3.3% in 2020 to 5.9% in 2023, while UPS’ operating margin fell from 13.2% in 2019 to 10% in 2023.
• Also, looking at the last twelve months period, UPS’ operating margin of 10.6% fares better than 7% for FedEx.
• The decline in operating margin for UPS can be attributed to higher operational expenses, primarily fuel, and declining volumes.
• Our FedEx Operating Income Comparison dashboard has more details.
• Looking at financial risk, UPS fares better, with its 16% debt as a percentage of equity being lower than 74% for FedEx, and its 10% cash as a percentage of assets is higher than 8% for the latter. This implies that UPS has a better debt position and more cash cushion.

3. The Net of It All

• We see that UPS has demonstrated marginally better revenue growth, is more profitable, and has a better debt and cash position.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe UPS is the better choice of the two.
• Even if we compare the current valuation multiples to the historical averages, UPS is better, with its stock currently trading at 1.4x revenues vs. the 1.6x average over the last five years. In contrast, FedEx’s stock trades at 0.7x revenues, aligning with its last five-year average.
• Our FedEx (FDX) Valuation Ratios Comparison and United Parcel Service (UPS) Valuation Ratios Comparison offers more details.
• We expect a return of 10% for UPS over a three-year period vs. a 5% expected return for FDX, based on Trefis Machine Learning analysis – FedEx vs. UPS – which also provides more details on how we arrive at these numbers.
• However, the 10% returns for a stock in three years isn’t a great outcome, and there maybe better picks in the broader S&P500 index. Our Better Bet Than UPS dashboard has more details.

While UPS may outperform FDX in the next three years, it is helpful to see how FedEx’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 3/15/2024
[2] Cumulative total returns since the end of 2016

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