The Battle of the Delivery Giants: UPS vs FedEx
The UPS vs FedEx battle is confusing for investors because both delivery giants are decent value stocks.
For example, UPS (NYSE: UPS) records a gross profit of $18.452 billion on revenues of $19.848 billion for 4th Quarter 2018. Meanwhile, FedEx Corp (NYSE: FDX) reports a gross profit of $10.839 billion on revenues of $17.824 billion for 4th Quarter 2018.
Moreover, both companies are experiencing significant growth. In detail, UPS’s revenues grew at a rate of 4.6% during 4th Quarter 2018, while FedEx’s revenues grew by 9.26% in the same period.
Thus I classify both delivery giants are as growth stocks. However, UPS offers a higher gross margin and more revenues.
UPS vs FedEx are they making money?
Both delivery giants are making money, despite the cut-throat competition between the two.
For instance, UPS records an operating income of $2.004 billion and a net income of $453 million for 4th Quarter 2018. In addition, UPS reports an operating cash flow $3.289 billion and a free cash flow $1.488 billion for the same period.
Conversely, the former Federal Express records an operating income of $1.68 billion and a net income of $935 million for 4th Quarter 2018. Thus FedEx is making more money than UPS.
However, FedEx is generating less cash than UPS. In detail, FedEx reports a free cash flow of $23 million and an operating cash flow of $1.478 billion for 4th Quarter 2018.
Why UPS and FedEx are Value Investments
I guess, FedEx brings in less cash because it has fewer commercial customers and government accounts than UPS. To explain, much of UPS’s business comes from regular accounts like Amazon shippers who must pay cash to ship to stay in business.
However, the financial numbers indicate both UPS and FedEx are generating a lot of excess cash. The excess cash forms what Warren Buffett likes to call “float.”
The float is extra money that a company’s management can tap for a wide variety of purposes. For instance, an insurance company can use float from premiums to pay for expansion.
Hence, UPS and FedEx can use the float paid by shippers for expansion or acquisition. Obviously, this leads to the question, how much cash do United Parcel Service and Federal Express have?
How Much Cash do UPS and FedEx have?
Notably, UPS records $810 million in short-term investments and $4.225 billion in cash and equivalents for 4th Quarter 2018. Therefore, UPS had $5.035 billion in extra cash on 31 December 2018.
Moreover, FedEx records $2.123 billion in cash on November 30, 2018. Thus, UPS has more cash available than FedEx. Thus, I think UPS is more a value investment than Federal Express because of the cash and the lower stock price.
Notably, UPS shares were trading at $111.80 on 1 March 2019. Meanwhile FedEx was trading at $183.07 on the same day. Under these circumstances I conclude Mr. Market is overpricing FedEx.
Battle of the Dividends FedEx vs. UPS
Theoretically, both UPS and FedEx should be good dividend stocks because of all the cash.
FedEx lives up to the theory. In fact, FedEx is scheduling a 65¢ dividend for April 1, 2019. Moreover FedEx’s dividend grew by 15¢ in 2018 rising from 50¢ in April to 65¢ in June.
Additionally, the former Federal Express offered investors a 1.42% dividend yield, an annualized payout of $2.60 and a payout ratio 15% on March 1, 2019. Plus, FedEx’s dividend has been growing for the past nine years.
In contrast, UPS will pay a 96¢ dividend on March 12, 2019. Impressively, UPS’s dividend will grow by 5¢ this quarter. To explain, UPS paid a 91¢ dividend in December 2018.
Notably, UPS offered investors a dividend yield of 3.48%, an annualized payout of $3.84, and a payout ratio of 53% on March 1, 2019. Like FedEx, UPS has experienced nine years of dividend growth.
Who is the winner in UPS vs FedEx
I conclude UPS is the better stock because of its lower price, the bigger dividend, and a larger pile of cash.
In fact, I believe UPS is a good dividend and growth stock with value characteristics. However, FedEx is a good stock upon which you will not lose money.
The bottom line is that delivery is a value investment in the Age of Amazon (NASDAQ: AMZN). Furthermore, delivery services will keep expanding and making money as we do more and more of our shopping at Amazon.
Thus, both delivery giants are value investments and will stay that way for the foreseeable future. Hence, the true winner of the UPS Vs FedEx battle of the delivery giants is the investor, particularly the dividend investor.
