FedEx Corporation (FDX): Is This Bellwether Company a Buy?

Competition

FedEx’s close competitor United Parcel Service, Inc. (NYSE:UPS) is also expected to be benefited from the growth of e-commerce operations. As the U.S. economy is expected to improve, the shipment package volumes should grow as well. In order to tap from the e-commerce market, a few years back United Parcel Service, Inc. (NYSE:UPS) launched a tracking system, “On-Road Integrated Optimization and Navigation”, or ORION. Presently, ORION is used by the company in around 40 places in the U.S., but further locations are expected to be added soon. The use of ORION will optimize delivery time and reduce delivery-costs only adding to company’s business.

The businesses these days are reaching consumers directly and because of that UPS’s B2C; “business to consumer” shipments are increasing and now form around 40% of the revenue. By fiscal year 2015 company’s total revenue should reach $26.5 billion from $23.1 billion in 2012 benefiting from the overall growth from e-commerce sales and increased B2C deliveries.

Another FedEx Corporation (NYSE:FDX) rival, Deutsche Post (NASDAQOTH:DPSGY) is also investing in parcel shops so that it is better equipped to benefit from e-commerce growth. Further, the company is reducing its traditional mail service. As the company operates majorly in Europe, a stagnant market, so changing according to the need of the hour is more of a necessary to the company.

In its last reported quarter, Deutsche Post’s Parcel Germany, Express TDI, Forwarding/Freight and Supply Chain saw a decent growth. The earnings mainly surged because of improvement in DHL Express business. The company’s guidance for the full year 2013 is $3.55 billion to $3.88 billion.

Final words

Among all three freight service companies, FedEx Corporation (NYSE:FDX) has the strongest potential to grow in the future. With a PEG ratio of unity and a P/E ratio of 20 times the stock looks fairly valued. United Parcel Service, Inc. (NYSE:UPS) is trading 96 times its earnings, far above the industry average and is currently a little expensive compared to its growth potential. A correction in price should be seen as a buying opportunity.

The article Is This Bellwether Company a Buy? originally appeared on Fool.com and is written by tarun bachhawat.

tarun bachhawat has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service (NYSE:UPS). tarun is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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