By Senad Karaahmetovic
Bernstein analysts reiterated Outperform rating and raised price targets on FedEx (NYSE:FDX) and United Parcel Service Inc (NYSE:UPS) as they believe that the competitive dynamic in the parcel sector is improving.
The new price target on FDX stock is $261 per share, up from the prior $246.
“The Express network is being reconfigured, and will (we think) end up being more about small package than airfreight. The Ground business has been dropping lower yielding Economy (nee SmartPost) packages from the system for the last several quarters, which is trading volume for a higher yield. This sounds a little like better, not bigger, but not in those words,” the analysts said.
As for UPS, the new target is $215 (down from the prior $227).
“The company is also more willing to flex down capacity in periods of weaker demand as opposed to chase more volume with marginal rates. The benefits of this change in dynamic are evidenced by UPS's ability to drive margin gains through down volumes the last several quarters, more than offsetting headwinds from operational deleveraging with improvements in revenue quality,” they wrote in a client note.
Overall, the analysts highlight revenue quality pricing to the value “that should support a re-rating of the sector going forward.”