Wells Fargo Sees FedEx More Likely To Deliver Gains Than UPS

Ahead of earnings next week, Wells Fargo initiated coverage on both shipping giants, FedEx Corporation FDX and United Parcel Service, Inc.UPS, although it appears FedEx is more likely to deliver gains.

Analysts are bullish on the industry, but see FedEx reaching its destination quicker, after initiating coverage on the company with an Outperform rating and a $215-220 price range.

"The recent TNT acquisition offers FDX strategic growth opportunities and a more competitive global position," Wells Fargo analysts said in a note Tuesday.

The firm believes FedEx can close the historical gap against UPS as the company continues to secure ground market share gains and narrow the margin gap, all while improving returns.

E-commerce growth has also served as a positive catalyst for FedEx, with Wells Fargo citing that the company maintains more room for improvement in margins, returns and free cash flow relative to UPS. Wells Fargo is modeling for EPS of $12.00 on revenues of $60.10 billion in FY2017.

Wells Fargo initiated coverage on UPS with a Market Perform rating and a $110-115 valuation range.

“UPS sets the benchmark for both capital and operating efficiency with industry leading margins, returns, and free cash conversion,” Wells Fargo said. “Yet while life is good at the top, we fear the runway for additional gains may be too short for shares to lift off in 2017.”

A recent shift towards consumer facing and away from B2B continues to challenge margins for UPS.

See Also:

FedEx Shares Could Rise Over 30% By 2020

UPS Represents A Consistent Secular EPS Growth Opportunity