FedEx, UPS Disagree On Christmas

Oct.23.12 | About: FedEx Corporation (FDX)

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.

Judging from the numbers put out this week by FedEx Corporation (NYSE:FDX) and United Parcel Service (NYSE:UPS), it may pay to shop early.

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.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.