A war is slowly brewing in the markets between two of the biggest courier services companies — and the world is officially put on notice.
On Tuesday, both FedEx (FDX) and TNT Express NV (TNTEY) released a statement claiming that the European Commission saw no reason to block FedEx’s proposed takeover of TNT. With the matter all but set, it would hand FedEx an established ground transit network that would harmonize perfectly with FDX’s current European air-express business.
Naturally, this would not sit well with United Parcel Service (UPS), which saw its own takeover bid of TNT Express fall by the wayside two years ago thanks to the same European Commission.
At the time, it was determined that a potential deal would provide UPS — which has a much stronger presence in Europe than FedEx — with an unfair competitive advantage. Not to be on the short end of a lovers’ quarrel in the markets, UPS has appealed its case in court and is vigorously lobbying against the FedEx deal.
No matter.
UPS stock has been a consistent winner in the markets despite the major challenges in the global economy post-2008, and that performance is what investors will bank on moving forward.
Although UPS stock is down 4.6% year-to-date, it has been one of the strongest blue-chip stocks since the beginning of September, gaining nearly 12%. In contrast, FDX is in the red by more than 8% YTD, despite a 10% swing this month generated largely by the favorable — or unfair, from UPS’ perspective — ruling.
UPS Earnings Momentum
The other advantage for the rejected courier is in momentum for UPS earnings. While both FDX and UPS earnings suffered were mixed for the better part of 2012 through 2014, the latter has regained its mojo.
Between the third quarter of fiscal year 2014 until Q2 FY2015, UPS earnings per share met or exceeded Wall Street estimates. As a result, the average lift in share value a month after UPS earnings are released increased to nearly 2% in the last four quarters — a 12% improvement in the lift seen between Q1 FY2012 and Q2 FY2014.
Fundamentally, UPS stock is backed by a series of solid figures. Annual revenue has steadily increased throughout this decade while maintaining a consistent gross margin. In addition, its operating margin and net margin is ranked higher than 60% of companies within the express-delivery industry, bolstering net income trends in the last two quarters.
Taken as a whole, UPS earnings for Q3 FY2015 — scheduled to be released on Oct. 27 — should at minimum meet Wall Street’s consensus estimate of $1.37.
In recent years, Q3 reports have produced strong results for the company. Furthermore, UPS earnings for Q2 came in at $1.35, just two pennies shy of the current target. So long as nothing drastic happens, the better-than-average margins combined with a consistent uptick in top-line sales should deliver the goods for UPS stock investors.
Although FDX won a major — and highly improbable — legal victory paving the way for its acquisition of TNT Express, UPS won’t take this lying down.
UPS stock’s recent rally in the markets, along with robust numbers on the fundamental side, confirms that when it comes to the battle between the express-delivery titans, investors prefer the size and stability of UPS stock.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
