UPS preferred over riskier FedEx, says Melius Research

By Sam Boughedda

Melius Research initiated coverage of FedEx (NYSE:) with a Hold rating and United Parcel Service Inc (NYSE:) with a Buy rating in a note Monday.

Analysts assigned UPS a $225 per share two-year price target and FedEx a $240 two-year price target. They explained the companies were boosted during the pandemic as online orders surged, but with the pandemic tailwinds subsiding, they are now at two different points on a similar path.

“The current environment favors UPS given a ground/domestic focus and a management team that has successfully worked to remove downside variability in margins during an uncertain environment vs. FedEx’s air / international mix,” wrote the analysts.

While the analysts believe FedEx is embarking on a “positive and necessary” cost-cutting effort that is being appreciated by the market, they said the company “may face outsized pressure given greater leverage to air freight and the pace at which the cost goals can be achieved.”

“For UPS, the earnings floor is now higher,” said the analysts, adding that “FedEx is an interesting restructuring story but carries more risk.”