This Delivery Giant Still Looks Cheap: FedEx Corporation (FDX), United Parcel Service, Inc. (UPS)

The fund’s top holdings indeed include the two package giants mentioned here, with FedEx Corporation (NYSE:FDX) making up 8.43% of the fund’s holdings and United Parcel Service, Inc. (NYSE:UPS) accounting for 7.24%.  The fund also gives exposure to other areas of the transportation sector, such as rail transportation through Union Pacific and Norfolk Southern, as well as ground transportation through holdings such as J.B. Hunt Transport Services.

As mentioned before, FedEx Corporation (NYSE:FDX) trades at a somewhat premium valuation of 17 times TTM earnings.  FedEx is expected to post earnings of $6.35 per share for the current fiscal year, and this number is expected to grow to $7.84 and $9.25 in fiscal years 2014 and 2015, respectively.  This would translate to earnings growth of 23.5% and 18%, which would make the P/E ratio seem extremely low if all goes well.

For comparison’s sake, UPS trades at a slightly higher valuation of 18.3 times TTM earnings, and is expected to earn $5.01 for fiscal year 2013, growing to $5.71 and $6.37 over the next two years, for a forward growth rate of 13% on average.  However, for those investors who want to rely on their stock portfolio for income, United Parcel Service, Inc. (NYSE:UPS) is the clear winner here, given the fact that its dividend yield is 6 times that of FedEx.

So, on the surface, FedEx Corporation (NYSE:FDX) seems to be more attractively valued, and could indeed produce the better returns for investors if the consensus estimates are accurate.  However, bear in mind that FedEx is more dependent on foreign economies, particularly Europe.  This added risk and instability is perhaps the cause for the seemingly discounted valuation.  At any rate, I still see FedEx Corporation (NYSE:FDX) as a relatively safe investment whose global reach and efficient operations should make it a winner for decades to come.

The article This Delivery Giant Still Looks Cheap originally appeared on Fool.com and is written by Matthew Frankel.

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