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FDX vs. UPS
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<blockquote data-quote="clueless" data-source="post: 646735" data-attributes="member: 15572"><p>imo--you're on the right track and OP's 'dysfunctional' friend has a point--union rules, union wages add to an inflexible cost structure as well as higher costs--wages and benefits. "The Street" takes this into account when valuing a company's stock. A high level of operating cost aka high operational gearing/leverage warrants a higher risk premium therefore a discount in valuation because it reflects greater risk in that cash flow is characterized by higher standard deviation/variance with such a cost structure.</p><p></p><p>If you look at the 10-Q's filed by both FDX and UPS for the MRQ's, you will see that UPS' compensation and benefits comprise 57% of revenues whereas FedEx's only compromise 42%</p><p></p><p>Also, we had a discussion a few weeks ago about the debt levels of UPS vs FDX. Whereas higher operational gearing equates to greater risk inherent in the <em>cost structure</em>, cet par, financial leverage equates to greater risk in the <em>capital structure</em>--higher risk means high risk premium, lower valuation, cet par. </p><p></p><p>Both sources of risk are no doubt being taken into account in the current stock price given that there is a greater potential for a hit to earnings accruing to shareholders during poor economic times when either the cost structure or the capital structure is highly leveraged.</p></blockquote><p></p>
[QUOTE="clueless, post: 646735, member: 15572"] imo--you're on the right track and OP's 'dysfunctional' friend has a point--union rules, union wages add to an inflexible cost structure as well as higher costs--wages and benefits. "The Street" takes this into account when valuing a company's stock. A high level of operating cost aka high operational gearing/leverage warrants a higher risk premium therefore a discount in valuation because it reflects greater risk in that cash flow is characterized by higher standard deviation/variance with such a cost structure. If you look at the 10-Q's filed by both FDX and UPS for the MRQ's, you will see that UPS' compensation and benefits comprise 57% of revenues whereas FedEx's only compromise 42% Also, we had a discussion a few weeks ago about the debt levels of UPS vs FDX. Whereas higher operational gearing equates to greater risk inherent in the [I]cost structure[/I], cet par, financial leverage equates to greater risk in the [I]capital structure[/I]--higher risk means high risk premium, lower valuation, cet par. Both sources of risk are no doubt being taken into account in the current stock price given that there is a greater potential for a hit to earnings accruing to shareholders during poor economic times when either the cost structure or the capital structure is highly leveraged. [/QUOTE]
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