SAO PAULO – Two Wall Street stocks soared along with techs in the coronavirus pandemic, but escaped the recent correction that these papers suffered. The delivery companies FedEx and UPS have good prospects for analysts and recently received a new round of upgrade recommendations.
Since the beginning of the year, FedEx shares have accumulated a 78.7% gain on the New York Stock Exchange (NYSE), while UPS shares have increased 50.3% in the same period. In the last two months alone, shares have risen 45.6% and 17.8%, respectively. Here in Brazil, the BDRs (share receipts) of FedEx and yes UPS shoot 143% and 104.6% in 2020.
Deutsche Bank last week raised the recommendation for FedEx holdings for purchase, raising the target price for the papers from $ 243.00 to $ 318.00 – which sets an appreciation potential of 18, 7% over yesterday’s closing.
It was the fifth house of analysis that has upgraded the recommendation for FedEx shares since July. According to Deutsche analyst Amit Mehrotra, the company’s results for the first fiscal quarter in the United States, which ended on August 31, helped to demonstrate that the company can navigate the e-commerce boom caused by the pandemic.
FedEx reported adjusted net income 60% higher than seen a year ago, totaling $ 1.28 billion, or $ 4.87 per share. The company’s net revenue grew 13.5%, to US $ 19.3 billion. Analysts had expected earnings per share of $ 2.69 and revenue of $ 17.55 billion, according to Reuters.
The Deutsche analyst already had a purchase recommendation for UPS, with a target price of $ 160.00. “We see the next results for both companies as having the potential to generate pricing power [das ações] very strong, whose benefits are probably still being underestimated, ”said Mehrotra.
UPS had its high recommendation of neutral to purchase by the American brokerage KeyBanc Capital Markets, with a target price of US $ 190.00 – which represents a potential of appreciation of 8.6% over the closing of yesterday.
Analyst Todd Fowler highlighted the positive trend for the company. “We expect a steady cadence of favorable comments on prices and yield, efficiency and capital implantation initiatives,” he said.
Allison Landry, an analyst at Credit Suisse, raised UPS’s recommendation for outperform (performance above the market average) with a target price of $ 192.00, compared to $ 147.00. Landry said the catalysts are clear and attractive, including that domestic pricing power has changed tangibly for operators and that Capex is likely to start to fall after several years on the rise.
The analyst also noted that UPS is now being led by a leader with a proven track record of performance in cost performance, efficiency gains, capital discipline and better returns.
Multiples and Funds
According to Dow Jones, two-thirds of analysts covering FedEx shares have recommended buying the shares. As for UPS, the number is around 50%.
Currently, FedEx shares are traded at a multiple of 16 times the expected profit value for the company over the next 12 months. In the case of UPS, the ratio is 22 times the projected profit.
Although analysts are optimistic about the shares of delivery companies in the United States, the number of hedge funds investing in these papers has decreased.
Funds with a long position in FedEx shares increased from 50 to 47 in the last quarter, while those with a long position in UPS went from 48 at the end of March to 37 at the end of June.
Third Avenue is one of those who were heavily betting on FedEx recently. In a letter to shareholders in the first fiscal quarter of the United States, the fund manager emphasized that it is one of the largest logistics companies in the world.
“Despite its history of creating extraordinary shareholder value over decades, FedEx has faced a number of operational obstacles in recent years. First, the expansion and evolution of its land delivery services to meet the rapidly growing demand for e-commerce required expensive investments and created inefficiencies in the FedEx Ground network in the short term, ”he wrote.
“Second, in 2016, FedEx acquired TNT to expand its European operations and increase the scale within its FedEx Express business line. This is a business that was already inherently less profitable and more capital intensive than its FedEx Ground business, ”he added.
The manager said his view is that FedEx’s substantial investments to continue “supremacy for decades” in an evolving e-commerce market are “sensible and strategic”.
“We also believe that the costs associated with integrating with TNT will be dispelled in the coming quarters and that the FedEx management is strategically positioning the company to maintain its critical status in the secularly growing package delivery oligopoly,” he said.
“Over time, we expect FedEx to return to historic levels of profitability and return on capital, in addition to significantly increasing overall turnover in the future. Our estimates suggest that this should also result in a substantially higher share price, ”he concluded.
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