UBS: Growth Is Priced In At United Parcel Service Inc., FedEx Corp.

Two major package delivery companies will see gains from a growing economy and lower fuel prices, but a strong outlook is already priced into their stocks, an analyst said Thursday. UBS' Thomas Wadewitz launched coverage with Neutral ratings on both United Parcel Service Inc.

and FedEx Corp.

. Wadewitz noted UPS' 13 percent gain since August and an 18 percent bump for FedEx over the same period. Investors have priced in "the expectation of strong business trends and significant earnings growth," Wadewitz said. Analysts on average expect UPS to post 2014 earnings growth of 8.5 percent, rising to more than 14 percent next year. FedEx 2014 earnings growth is forecast to top 34 percent, slowing to 20 percent next year. Economic growth plus a tight supply in other transportation markets including rail and truckload shipping favor the two companies' business, while the 40 percent decline in oil prices of recent months will bolster profit margins. Recent data from the Institute of Supply Managers plus growth in e-commerce suggest continued growth in small package volume, although Wadewitz said the segment can present "operational challenges" where the number of packages per stop is low. The current share price of both FedEx and UPS relative to projected earnings is in the upper half of their historical range, according to Wadewitz. "There is limited upside," Wadewitz said. FedEx changed hands recently at $178.43, up $1.97, while UPS traded at $111.12, up $1.06.