The world's two shipping companies are enjoying a massive rebound in volumes and revenue. United Parcel Service (UPS) reported earnings this week. The company reported that earnings surged 44% in the fourth quarter. UPS also stated that 2011 earnings per share should set an all-time high.
Which shipping giant is the right one to buy, FedEx (FDX) or UPS? With a broad recovery in the shipping business, many investors are asking that question. Let's look at the metrics of both stocks side by side.
|Market Cap||29.2 B||54.4 B|
|5 Year Div. Growth Rate*||8.70%||7.30%|
|Return on Equity||11.28||62.7|
|Revenue TTM||37.22 B||48.5 B|
|Cash Flow TTM||3.79 B||3.09 B|
|Capex/Cash Flow FYE||0.9||0.45|
|5 Year Rev. Growth Rate*||3.40%||3.10%|
|Net Profit Margin*||3.41%||4.75%|
|Current Assets||7.40 B||10.76 B|
|Long-term Debt||1.67 B||8.66 B|
UPS is the real giant, almost twice the size, by market cap, of FedEx. Bigger isn't always better, though. Both stocks have enjoyed gains over the past twelve months, but UPS is already up over 26% versus a 12% gain for FedEx. Both stocks trade at a forward P/E of close to 18. Beyond the P/E, there are more differences than similarities.
FedEx has a dividend yield of only .53% versus 2.62% for UPS. Both companies have grown their dividend at a similar rate over the past five years. FedEx trades at a price/book of only 1.99 versus 7.89 for UPS. FedEx also wins on the price/cash flow ratio at 9x versus 18.46x for UPS. However, UPS has a much better return on equity at 62.7%, versus only 11.28% for Fedex.
UPS has a much higher debt load than FedEx. UPS holds $8.66 billion in long-term debt and has a debt/equity ratio of 2.4x. FedEx only holds $1.67 billion in long-term debt and has a debt/equity ratio of only 0.14x. Capex/Cash flow is a measure of how much reinvestment it takes to generate the company's cash flow (sometimes called CapFlow). You can read a detailed description of CapFlow here. The CapFlow ratio for FedEx is 0.9 versus only 0.45 for UPS.
UPS has a smaller, but growing international business. International shipments usually enjoy higher profit margins. Both companies have grown revenues over the past 5 years, with FedEx edging out UPS in that category.
FedEx is definitely the cheaper stock on most metrics. However, cheaper doesn't always mean better. Both companies should perform well as shipment volumes recover. As a value investor, I like the valuations of FedEx. As a dividend investor, I much prefer the dividend of UPS.
In choosing between the stocks, I would recommend UPS. Even though UPS has higher debt, the company has rewarded shareholders to a greater degree. The return on equity is much better for UPS. It seems as though UPS is using its capital more efficiently than FedEx. UPS is a growth story in a rebounding sector. UPS should continue to outperform FedEx in your portfolio.