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UPS Hits Record High, FedEx Extends Gains on KeyBanc, Deutsche Bank Upgrades

Delivery groups UPS and FedEx paced early gains on Wall Street Monday thanks to a pair of broker upgrades that highlight increased pricing power in the package delivery sector.

FedEx Inc.  (FDX) - Get Free Report shares jumped higher Monday, while UPS Inc.  (UPS) - Get Free Report traded at an all-time high, after analysts at Deutsche Bank and KeyBanc boosted their ratings on the world's two biggest package delivery groups on the back of improving pricing trends in the sector.

Deutsche Bank analyst Amit Mehrotra lifted his rating on the stock to 'buy' from 'hold', with price target to $318 per share, citing what he called the markets underappreciation of pricing power for both FedEx and its main U.S. rival, UPS.

"We project Ground margins to be up at least 300 basis points – the best year-on-year improvement in Ground margins in any quarter since at least 2012, reflecting accelerating yield (revenue per shipment) and decelerating cost per shipment," Mehrotra wrote in a client note. 

FedEx shares were marked 2.80% higher in early Monday trading to change hands at $257.50 each, a move that extends its six-month gain to around 107%. 

UPS, meanwhile, was upgraded to 'overweight' from 'sector-weight' by KeyBanc Capital Markets Todd Fowler, with a $190 price target, with the expectation of a "steady cadence of favorable commentary around yield, efficiency, and capital deployment initiatives from new CEO Carol Tomé, which, combined with secular trends supporting domestic package growth, should aid margins and returns." 

UPS shares jumped 2.4% to $170.26 each to extend t their six-month gain to 75.4%. Shares in the group hit an all-time high of $171.88 early in the session. UPS will publish its third quarter earnings on October 27.

FedEx passed a two-year high last week after it posted stronger-than-expected first quarter earnings and said it was working on a plan to help distribute coronavirus vaccine treatments to governments and hospitals around the world. 

Group revenues, FedEx said, rose 13.5% to $19 billion, thanks in part to big gains in it ground shipping business, which moves products for e-commerce giants such as Amazon  (AMZN) - Get Free Report and Walmart  (WMT) - Get Free Report.

Lower fuel costs helped improve margins at FedEx Freight, which saw a 9% decline in shipments but an operating margin of 15%, while FedEx Ground said volumes surged by nearly a third compared to last year.

FedEx also said it was launching what it calls FedEx SenseAware ID, an enhanced tracking and security censor it says will be a "critical feature to the anticipated vaccine distribution efforts."