United Parcel Service, Inc. (UPS), FedEx Corporation (FDX): Is There Any Spice in the Airfreight Sector?

Is FedEx Corporation (NYSE:FDX) going to be Bill Ackman’s next target?

FedEx Corporation (NYSE:FDX) is down 2% since United Parcel Service, Inc. (NYSE:UPS)’s announcement on a weak airfreight market. However, the stock is still up 4% in the last week, as the shares popped up on a rumor that Bill Ackman might be going long in it as he plans to do just that in a large-cap stock.

Apart from this, there are no obvious near-term catalysts, and hence FedEx Corporation (NYSE:FDX) is expected to be range-bound for the next several months until investors have greater visibility on the probability of cost savings in 2015.

As far as the segmental performance is concerned, the express business (overnight delivery) is currently witnessing slow trends. The ramp-up of cost- reduction efforts as well as the timing and extent of planned industry-wide capacity rationalization on Transpac routes remain significant earnings-swing factors for 2014 and beyond.

Over the longer-term, the contribution from the ground segment (normal delivery time) remains under-appreciated, as the secular growth in e-commerce and market share gains drive increased profit contribution.

For investors bullish on the macro economy, FedEx Corporation (NYSE:FDX) still has plenty of cyclical leverage and the stock is expected to show gains at the first sign of a pickup in air freight. However, for now I remain on the sidelines.

Final word

Currently, the airfreight space remains far from being attractive given sluggish growth in global markets. However, that means that the stocks in this space are currently pretty cheap and will definitely go up once signs of recovery in airfreight emerge. By what time this will happen is a billion dollar question that nobody knows the answer to.

Zain Abbas has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. The Motley Fool owns shares of Expeditors International of Washington. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is There Any Spice in the Airfreight Sector? originally appeared on Fool.com is written by Zain Abbas.

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