FedEx Gets Thumbs Up, UPS Cut to Sell at Berenberg

A Berenberg analyst recommended a pair trade: buy FedEx and sell UPS.
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FedEx  (FDX) - Get Report shares were upgraded to buy while UPS  (UPS) - Get Report was downgraded to sell by a Berenberg analyst, who recommended the pair trade of the package-delivery majors.

Berenberg analyst William Howard had previously rated both companies hold.

At last check shares of FedEx, Memphis, fell 2% to $222.69 while UPS, Atlanta, dropped 3.6% to $159.86.

Fedex shares dipped even as the company said it would be expanding its Sunday delivery service to nearly 95% of the U.S. population. 

An "unprecedented peak holiday shopping season" necessitates the move, which will become official on Sept. 13, FedEx said. It began seven-day shipping full time at the beginning of the year. 

A pair trade is a situation when an investor goes long with one stock and short for another, usually in the same sector. 

"All three global integrators - Deutsche Post, FedEx and UPS - have had a pretty good pandemic so far. The market has got overexuberant about e-commerce growth," Howard said. 

The firm expects business-to-consumer shipping to grow about 20% in 2020 thanks to the coronavirus pandemic. The firm says that's already reflected in FedEx's 51% year-to-date share-price increase and UPS' 42% year to date rise. 

UPS is trading, however, at 21 times estimated 2021 earnings, a 32% premium over its 10-year trading history. 

For FedEx, Berenberg sees a wider profit margin relative to UPS. 

The firm set a price target of $280 for FedEx, representing 23% potential upside. He set a price target of $130 for UPS, a potential 22% downside from its Wednesday close.