Atlantic Equities analysts initiated research coverage of FedEx (NYSE:FDX) and UPS (NYSE:UPS) with Overweight and Neutral ratings, respectively.
The analysts highlight that FDX has a larger air exposure while UPS is bigger on the ground.
“This dynamic has historically provided greater organic growth opportunities for UPS as ground market growth has outpaced air,” they said in a client note.
However, due to FedEx’s cost-cutting activities, the company is narrowing the margin and valuation gap to its biggest rival.
“UPS and FedEx differ in financial outlook and the current ability to offset wider macroeconomic headwinds. Although we regard UPS highly, we believe it has over earned during COVID and expect its financial performance to mean revert. On the other hand, FedEx has the ability to drive stronger financial outperformance, relative multiple expansion and offset recessionary pressures through its cost out initiatives,” the analysts added.
They also argue that consensus is “overly bearish on FedEx’s implied FY26 targets.”
On the valuation front, FedEx also “offers value to investors given its ability to narrow the discount to UPS in the short to medium term through superior margin expansion and EPS growth.”
FedEx and UPS shares are moving slightly lower in premarket Tuesday.