This Delivery Giant Still Looks Cheap: FedEx Corporation (FDX), United Parcel Service, Inc. (UPS)

FedEx Corporation (NYSE:FDX) is a leader in guaranteed time delivery for both domestic and international package delivery, the demand for which has skyrocketed lately.  With the growing number of consumers doing their shopping online, FedEx’s revenue has nearly doubled over the past decade.  Although their stock is currently trading towards the high-end of its historic valuation at 17 times earnings, I think this is still a bargain, due to both the strong earnings growth projected, as well as the strength of the company itself.

FedEx provides time-definite delivery services in more than 220 countries, as well as freight transportation and customized logistics for their customers.  FedEx Corporation (NYSE:FDX) bought Kinko’s for $2.4 billion in 2004, which allowed the company to provide business services at over 1,200 locations that were subsequently renamed FedEx Office.

The company has a network of 52,400 ground vehicles, 660 airplanes, and 58,400 drop-off boxes, which makes it the world’s largest provider of guaranteed express delivery services.  Their general strategy is to ensure that their business is running as efficiently as possible, while at the same time expanding their global reach.  For example, FedEx Corporation (NYSE:FDX) has the authority to operate 30 weekly flights into China, the most of any U.S.-based carrier.  To further highlight the company’s potential for overseas growth, consider that less than half (48%) of their revenue currently come from international operations.

As far as delivery services go, FedEx’s main competitors are United Parcel Service, Inc. (NYSE:UPS) and the United States Postal Service, as well as other government and independent delivery services around the world. United Parcel Service, Inc. (NYSE:UPS) is the world’s largest express and package delivery company, and is much more of a domestic company, with only 22% of revenue coming from international package deliveries.  United Parcel Service, Inc.(NYSE:UPS) delivers 15.8 million packages per day, or just over 4 billion per year.

One of my favorite aspects of UPS as an investment is its track record of increasing its dividend (currently at 3%, much more than the 0.5% yield of FedEx).  United Parcel Service, Inc. (NYSE:UPS) also has a very nice buyback program, and since 2009 has reduced the number of outstanding shares by 6.7%.

There are also a number of ETF’s that allow investors to get exposure to the entire transportation index, with my favorite being the iShares Dow Jones Transportation Average Index Fund.  This is actually my favorite way to play the sector as a stable long-term investment, and also get some income with a dividend yield of about 1%.