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Tag: Logistics

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Logistics and Transportation Stocks

Q2-2024 Results for UPS Lower Than Expected (UPS) $130

Revenue missed by about 2% ($440Mn miss on $21.8Bn revenue). Revenue dropped 1.4% YoY, indicating that economically sensitive cyclicals are still having a hard time. FedEx too, expects just 1.8% growth for the second quarter. UPS’ earnings miss was 10% – that hurt the stock more, its down 10% premarket to $130. 

For the past 3-4 weeks there has been a steady drum beat to get out of expensive tech to companies that could benefit from lower interest rates and cheaper valuations. 

The 10% drop in UPS due to the big earnings miss and the lack of growth underscores how difficult it is to find and invest in the right cyclical. Avoid the value traps and be very discerning in finding the right company or index. 

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Shipping Stocks

Arcbest (ARCB) $105 Is A Cyclical Business

It’s a cyclical business with long term revenue growth now expected to be 6-7% but given better operating efficiency earnings should increase about 12%. That said this is a low margin high cost/high volume business, operating margins are only 8%.

2023 was a weak year, revenue dropped 12%, the first in 9 years. Management has cautioned weakness for 2024 as well, but business should pick up in 2025

It being a cyclical business, buying the stock cheap is essential to make a decent return on investment, and at $105 the stock is about 30% cheaper than the 52-week high of 154. It is also substantially cheaper than some of its peers like XPO and Heartland. 

The good thing about cyclicals is that they outperform from the bottom of the down cycle so if one picks up a stock like Arcbest really, really cheap at $80-$85, it can easily scale back to $150 in 3 years, which means doubling your investment. Given that there is nothing exceptional about the business or the company I would wait for a really cheap price.

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Logistics and Transportation

Federal Express (FDX) Still A Hold, Wait For A Pullback.

source

Federal Express FDX $241 – Buy on declines, cyclical, improving margins, next three years expect at least 10-12% earnings growth, very reasonably priced at 14x earnings.

Yes, absolutely right on the patience part, this one gives medium returns, shouldn’t expect more than 10-12% a year +2% dividend yield, and with the 18% rise in the past year, some of it is already in the price. Revenue growth should improve 4-5% after a flat 2024. (Year ends in May)

Good news is there have been cost cutting moves, and emphasis on efficiency – the express business profits tend to be low, and it’s the ground services that’s really keeping the company profitable. Overall it makes only 7-8% operating profit compared to UPS’ 10-11%, but this will improve with execution of the “DRIVE” program which is its effort to improve efficiency. If they execute this well, there could be further upsides.