Amid these uncertain times, it helps to look at the opinions of Wall Street experts for selecting stocks of companies that are more capable of sailing through challenging times and have the potential to deliver lucrative returns.
Using the TipRanks stock comparison tool, we will pit three logistics stocks— FedEx, United Parcel and XPO Logistics against each other and pick the one that Wall Street analysts find more promising.
FedEx Corporation (NYSE: FDX)
FedEx benefited immensely from the e-commerce spike triggered by the pandemic. However, the company’s most recent results reflected certain challenges that impacted the delivery giant’s performance.
FedEx’s Q3 2022 (ended February 28, 2022) adjusted EPS increased 32.3% year-over-year to $4.59, but missed analysts’ forecast of $4.65. Revenue increased about 10% to $23.6 billion, exceeding analysts’ estimates of $23.5 billion.
Following a strong December, FedEx experienced Omicron-led staffing shortages, particularly in its air operations, which caused significant constrained capacity and network disruptions. The spread of Omicron also impacted demand in the domestic and European markets, causing volume softness in Q3.
Despite challenges, FedEx Express delivered operating income growth of 12%. The operating income of FedEx Freight, the company’s smallest segment, almost tripled due to higher rates and increased average daily shipments.
However, FedEx Ground segment’s operating income fell 9% in Q3, reflecting the effect of a constrained labor market and costs associated with network expansion.
The weakness in Ground’s performance made Wells Fargo analyst Allison Poliniak slash her FY 22 margin assumption to 8.2% from 10%. However, Poliniak continues to believe in the segment’s ability to reach a mid-teen range margin over the next few years.
Poliniak highlighted FedEx’s growth levers for profitability, namely improved operating results in Europe, network optimization through increased collaboration, and efficiencies and share growth through digital innovation.
While Poliniak lowered her earnings estimates for FY 22 and FY 23 to reflect Q3 results and global uncertainty, she reiterated a Buy rating on FedEx stock “given the inherent earnings power in a normalized operating environment.”
The analyst lowered her price target to $277 from $314.
Overall, a Strong Buy consensus rating for the stock breaks down into 18 Buys and three Holds. The average FedEx price target of $295.75 implies 31% upside potential from current levels.
United Parcel Service (NYSE: UPS)
United Parcel is a leading provider of package delivery services and global supply chain management solutions with an extensive presence in over 220 countries.
UPS shares touched a new all-time high of $233.72 on February 1, as the company beat Q4 expectations, issued a robust outlook and raised its quarterly dividend by 49% to $1.52 per share. This dividend hike marked the largest increase in the company’s history.
UPS reported Q4 revenue of $27.8 billion, up 11.5% from the prior-year quarter and ahead of analysts’ estimates of $27 billion. Adjusted EPS grew 35% to $3.59, beating analysts’ forecasts of $3.09. Higher shipping rates and efforts to control expenses in response to Omicron drove the bottom-line improvement.
Despite certain near-term headwinds, UPS expects to meet its 2023 revenue and operating margin targets one year in advance, reflecting the company’s strategy to focus on more profitable customers like B2B, healthcare, SMBs and large enterprise accounts.
UPS expects revenue of about $102 billion in 2022, compared to $97.3 billion in 2021, and adjusted operating margin of about 13.7%, up from 13.5% in 2021.
Following the Q4 results, Loop Capital analyst Rick Paterson increased his price target on UPS stock to $250 from $226. However, the analyst reiterated a Hold rating due to valuation concerns.
Overall, the Street is cautiously optimistic on the stock, with a Moderate Buy consensus rating based on 11 Buys, eight Holds and one Sell. The average United Parcel price target of $241.35 suggests 12.42% upside potential from current levels.
XPO Logistics (NYSE: XPO)
XPO Logistics provides freight transportation services, primarily truck brokerage and less-than-truckload (LTL). It is the third-largest LTL carrier in the U.S. based on revenue.
Last year, the company completed a spin-off of its contract logistics business into a separate publicly traded company called GXO Logistics.
Earlier this month, XPO announced its decision to separate its tech-enabled brokered transportation services from its LTL business in North America, while divesting its European business and North American intermodal operation.
XPO expects to complete the planned spin-off in Q4 2022. The company believes that the separation of its North American LTL business from its asset-light transportation services will unlock significant equity value in both standalone entities.
LTL shipping enables transportation of goods from multiple customers in the same truck. This service is more relevant and economical than full truckload capacity, especially amid the global supply chain disruption caused by the COVID-19 pandemic.
Reacting to the news, Cowen analyst Jason H. Seidl stated “We like the announcement and see a core LTL-play offering potential multiple expansion for the company while using the asset sale as a way to quickly reduce debt load.”
Seidl increased the price target for XPO stock to $117 from $115.
On March 25, XPO announced that it had divested its North American intermodal business to STG Logistics for about $710 million in cash. The intermodal business generated $1.2 billion of revenue in 2021. XPO generated overall revenue of $12.8 billion in 2021, up 25.5% from the prior year.
Aside from Seidl, all other analysts covering XPO are also optimistic about the stock, resulting in a unanimous Strong Buy consensus rating based on 13 Buys. The average XPO Logistics price target of $99.27 implies 30.2% upside potential from current levels.
Conclusion
Wall Street analysts see higher upside potential in XPO Logistics stock compared to FedEx and UPS.
Moreover, XPO has a unanimous Strong Buy consensus rating from Wall Street analysts and scores a “Perfect 10” on TipRanks’ Smart Score system, indicating that it is more likely to outperform the market.
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