Why Delivery Companies Are On a Roll

Monday, October 27, 2014 Why Delivery Companies Are On a Roll   by Jamie Dlugosch   Has the Ebola scare finally subsided? I doubt it, especially with the market so skittish.   Surprisingly, stocks held up well last week to the news that a doctor in New York had tested positive for the virus.   Even more surprising was the gain in airline stocks. Not a couple weeks ago, the word Ebola could trigger a massive selloff for the air carriers.   Still, all it takes is a few more infected travelers from Africa to find their way to the United States and we could get a repeat of the carnage.   Perhaps we should take our travel game to inanimate objects. Specifically, delivery companies Federal Express (NYSE: FDX) and United Parcel Service (NYSE: UPS) have little to fear from the deadly virus.     FURTHER READING   No Matter Where Gas Prices Go -- You Get Paid   Gas prices have been moving down for a lot of the country -- thanks to fluctuations in crude prices. So finally, average American's are getting a little relief at the pumps. However, one group of folks are taking it one step further -- and letting big oil companies pay them to fill up. And believe it or not -- it's all part of an exclusive US Government program. And if you're eligible, you could collect up to $310 in Gas Rebates on Friday, October 31st.   Click here for all the details of this program.     UPS announced earnings results on Friday that exceeded expectations. The company posted a profit of $1.32 per share in the third quarter, beating the average estimate by 4 cents per share.   Revenues came in at $14.29 billion versus the estimate of $14.20 billion.   Shares of UPS barely moved on the news, gaining a little more than 1% in Friday morning trading. The size of the gain may have been muted by the near-10% gain that shares of UPS enjoyed coming off its most recent bottom.   I think there is a lot more to come. The Christmas season is around the corner; both UPS and Federal Express are expecting big things.   In its earnings report, UPS said it expected an 11% rise in December shipments. Given the  Ebola scare and the propensity of shoppers to remain safe at home, look for the numbers to blow away expectations.   Interestingly, UPS merely affirmed its guidance for the remainder of the year. It doesn't take a genius to see that the company is setting up the market for a big end-of-the-year surprise.   Considering that the UPS earnings report said little about the potential impact on operations of lower fuel costs, the surprise could be quite large.   The same goes for Federal Express.   At the end of September, Cowen & Co. upgraded shares of the overnight shipper to outperform. Cowen also lifted its target price for Federal Express to $210 per share or nearly 50% more than current levels.   It won't be hard to get to those numbers in the current environment.   Federal Express is looking for holiday shipments to jump 8.8%. That number is less than the double-digit increase the company saw in 2013, it is still quite solid and most likely too conservative.   Analysts expect Federal Express to grow profits by more than 20% this year. With a solid holiday season, it should be even better.   Given that shares trade for only 18 times the estimated earnings for the current fiscal year ending May 31, 2015, the stock is undervalued.   If you like to own stocks where there are inefficiencies in pricing, both Federal Express and United Parcel offer significant upside opportunities.   With the yet-to-be-determined impact of Ebola on online shipping and the lower-fuel-cost operating environment, both stocks could be stellar performers for the remainder of the year.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
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