Investors need a little Christmas, right this very minute. By that I mean we need insight into whether this Christmas season will be a good one or or bad one.
That's because UPS, a self-described leader in logistics (meaning getting merchandise on shelves) is cutting its estimates for the fourth quarter. FedEx - which does more of the final delivery - is forecasting a 13% increase in shipments. That would be a stellar year.
So far this year, FDX is up almost 10% while UPS is flat, but the latter - which popped $2/share on the open today - is still trading at a higher earnings multiple, 18.3 vs. 14.5. That's probably because UPS' margins are higher than those of FDX, bringing in over $1 billion/quarter to the bottom line against a half-billion for FDX, even though the top line at UPS is only about 20% higher.
By contrast, FDX has much less debt as a percentage of assets than UPS, and its operating cash flow looks much stronger. All this tells me that if you believe Christmas will be special this year, FDX is in a better position to capitalize, while if you think the Grinch is going to steal it, go with UPS.
I'm with FDX.