upscorpis said:
wkmac,
I believe the primary reason FDX has outperformed UPS in the recent past is due to the prior spread in PE between the two stocks. Ultimately, the market determined that the PE's should be closer together. Now, the premium is much smaller, although it is still evident which indicates that the market still likes UPS slightly more regardless of share price.
As for fuel, if it hurts UPS' price, FDX should suffer the same fate. FDX is contending with labor strife in their pilot ranks as well. I do agree that the view of the upside for FDX is brighter but by the same token, there is more downside risk in FDX vs. UPS. The betas of the two stock support this theory.
Short term, my thoughts are the downside risk is stronger for UPS due to the recent run up. I've been amazed how resilient the rally has been in the face of high oil and down market days. As long as earnings and forecasts remain in line, I think the announcement could mean a non-event in terms of substantial price changes. I'd bet slightly to the downside however, due to the recent market gloom. As we've seen, anything construed as negative seems to bring the price down, right or wrong. With high gas, rising rates, and inflation garnering more and more headlines, the mood is gloomy. But hey, everyone's got an opinion so who knows?
Yeah I agree about the PE. If you'll remember or look back, about 5 years ago UPS had a PE in the mid 30's with FDX in the teens and their reasoning at the time for UPS was that with Cap Corp. UPS was more like a GE stock than a pure transport and thus a PE in the same neighborhood as GE. Of course that all changed in the following years as a more realistic view emerged.
As to the shortside risk it's an open book to me. We're still $5 bucks away from our alltime high of $87 plus but if you compare us now to then there is a difference IMO. Obviously the revs and earning are higher and our global footprint has grown as well. We now have Freight to our product mix plus our customs abilities have vastly improved and we continue to accelerate our domestic time-n-transit lanes to where we are not only matching what FDX has done for years in that area but in some locales we are exceding them. The negative to the lane enhancement is what will be the total cost factor at the end of the day verses placing the product on the rails as we've done in the past? I do think this move by UPS will have a secondary benefit regarding labor relations as this will add many new FT jobs to the workforce and make a lot of people especially happy at IBT headquarters.
It would also appear our domestic volume growth having lagging under 3% for the last many years may in fact have not only exceded that but is passing the 4% mark. Don't quote me on that as I'm working from memory here and I could be wrong on that part. UPS many clear that picture up tomorrow with the lastest earning report. The one area that I think UPS can clearly help itself to propel way beyond FDX is to move more and more towards automation. I know this word normally means sac-relig among union folk and in some cases some jobs might be lessened but those jobs first off tend to be inside jobs of the PT ranks. I also contend that is you take a look at vastly automated facilities like Worldport for example, you still have 1000's and 1000's of people employed because all that automation still takes people to run it. The big difference is the jobs change and tend to be of higher pay because in many cases the people needed are of a more technical/skill type.
Also, since you are in the IS function, or at least I take that by you alias, more and more technology is needed even inthe older conventional buildings. For example, the current hand scanners used by the loaders are great but when do we step up and have scanners programmed to kick out misloads? Right now we rely on the person to do this and the success to failure IMO corresponds to the amount of effort done by management to hold people accountable. From what I've seen over the years in my location it's been a very mixed bag at best so again IMO the system has failed because the hourly for whatever legit or illegit reason isn't always getting it done and management for whatever legit or illegit reason isn't getting it done either. Go into SEAS and look across the country over time and then look at what is or is not done locally and it paints this very picture IMO. Now even with a smart scanner, you could still have some knucklehead misload the package but it still take a lot of human error potential out of it all.
I also think another reason we don't follow FDX (yes their scanners do this) is the heat is now on UPS' IE department to maintain the flow systems in order to make sure the scanners are right. It's funny when IE makes flow updates, in many cases you'll see an increase in SEAS of misloads and mistoggles and it's not uncommon when you begin to research the problem you'll find it stems back to incorrect data entered by IE in the new scheme. Could it really be high up the foodchain someone is scared knowing the responsibility that comes with this? Like automation, I always hear the same ole' "COST! COST! COST!" regarding automation and yes in some cases that's true but IMO it's not true in all cases and we still have a company that for the most part fears moving further and further into automation. This is where FDX, especially on their ground side, gets the big gold star because as they build their ground network they are looking ahead at an ever shrinking low wage labor pool and placing in solutions now to lessen that impact in the near and longterm future. IMO UPS is not as we still have to many dinosaurs in high places with the "give me a roller section and 20 people and I can git er done!" attitude.
Roller sections are a plenty but the people are a different story. Now add in this part that I rarely see discussed. Go and find out what your average inside employee must committ to memory to do their job. Sure they have the obvious methods of processing the package but then you have all the Safety related items like HABITS, current DART info, who is you safety person in you area, what are the functions of the safety committee, etc. and then you turn around and audit your operations which in most cases is a rush job to be able to pass at the last minute by management and then when you don't pass, much effort and expense is made to now prepare for the re-audit coming again soon. Couple all this in many areas where your workforce is almost a revolving door process and this time and effort of continous new training and lower productivity from any new employee until they begin to understand the ropes is a huge cost burden.
That is what FDX is building itself towards working around but I just don't see the same "sense of urgency" from UPS to follow suit. Again, I know I'll get cries of foul and treason from many here but my thoughts are not anti-union at all. Anti Pter maybe and moving the larger UPS workforce especially on the union side back towards large majority Fters but not anti-union. I'll plead guilty to that charge with no problem. Also less labor cost for UPS from Pters means a potential for more money to us Fter pockets because the pot will get bigger! Yep, it's about me!
Lastly, I do think FDX is on it's topside pricewise to it's stock. Looking at the last year with both stocks side by side FDX is up around 35% while UPS is up nearly 20% but in the last month UPS' stockprice trend line has been a nice steady uphill climb whereas FDX is looking like a fun roller coaster. This also tells me the market may have swung towards UPS and the thinking is tomorrow's numbers could be really good. I'll guess we'll find out in less than 24 hours.
c ya!
I'm still shocked we see no "STOCK SPLITS ARE COMING" threads.
Why not buy some Berkshire Hathaway and learn from the "Oracle of Omaha" of why not to worry with stock splits. In truth, there's no need for them IMO.