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Con-way Inc (CNW), FedEx Corporation (FDX): This Freight & Logistics Business Could Deliver a Lot of Value

FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS) are also big players in LTL market

Con-way’s less-than-truckload (LTL) business ranked the second largest with around 9.4% of the total LTL market, after only FedEx Corporation (NYSE:FDX) Freight with around 14.9% market share. United Parcel Service, Inc. (NYSE:UPS) Freight sits in fourth place, representing about 6.9% of the total LTL’s market. According to Logistics Management, the LTL market has experienced an ongoing turnaround, including yield management focus and contractual relationships. Recently, all three freight businesses have announced increases in their rates. Con-way’s freight rate will increase by 5.9% for non-contractual business while FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS) will raise their rates by 4.5% and 5.9%, respectively.

Investors might be bullish on FedEx Corporation (NYSE:FDX) with its $1.7 billion cost cutting program in the next three years. The company could substantially reduce its expenses by using a more fuel-efficient aircraft fleet, shrinking the business capacity in Asia and cutting jobs. The company expects to generate 7%-13% growth in its adjusted EPS and spend $4 billion in capital expenditure. Both FedEx Corporation (NYSE:FDX) and Con-way have quite a low valuation. At $38.90 per share, Con-way is worth around $2.2 billion on the market. The market values Con-way at 6.15 times its trailing EBITDA. FedEx Corporation (NYSE:FDX) is trading at $96.50 per share, with a total market cap of $30.6 billion. It is valued a bit cheaper, at 5.6 times its trailing EBITDA.

United Parcel Service, Inc. (NYSE:UPS), in contrast, is quite expensively valued. It has the total market cap of $80.6 billion. At $85.40 per share, the market values United Parcel Service, Inc. (NYSE:UPS) at a much higher valuation than the other two companies, at 27.3 times its trailing EBITDA. UPS expects low single-digit growth for the full year 2013 and estimates around $4.80 to $5.06 in earnings per share, a growth of 6% to 12% compared to the adjusted EPS last year.

My Foolish take

Among the three, I like FedEx Corporation (NYSE:FDX) and Con-way because of their low valuations and the clear turnaround initiatives, which could improve their business and the bottom-line. Both of them are trying to increase the operating margin via leaner and more efficient operation and cost reduction. For Con-way, the value could be unlocked further by spinning off Menlo Logistics and/or through stock buybacks and dividend raises.

The article This Freight & Logistics Business Could Deliver a Lot of Value originally appeared on

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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