Hands down, the biggest story in retail in recent years has been the rise of e-commerce. This major disruptive force has changed the way that businesses operate, as well as influencing consumer preferences.
As consumers find it more convenient to shop online, rather than getting in the car and driving to the mall, traditional retailers have watched their revenues plunge.
Yet investors who got in early on e-commerce have done well, and such companies as Amazon, Alibaba Group and Baidu continue to thrive. But intelligent investors can also benefit from purchasing shares of major package delivery services, most of all, FedEx (FDX) and United Parcel Service (UPS) . Their growth is intertwined with e-commerce sites.
First-quarter numbers for FedEx reflect how the company is running evenly with explosive e-commerce momentum. Fedex shares are up about 22% this year.
As e-commerce has grown in significance and capacity during the past few years, consumers have started ordering larger items over the internet, including big household appliances and pieces of furniture. This means that FedEx has had to re-engineer its ground delivery capabilities from delivering mostly smaller parcels. By smartly hiking surcharges for bulky shipments and by testing new equipment and facilities better suited to handle big items from e-commerce, FedEx has managed to address this altering landscape.
These capabilities are particularly important as the holiday season approaches.
Sales from e-commerce are projected to rise 11% this year, to $91.6 billion. Experts suggest that FedEx could expect roughly 10% growth in holiday season shipping volumes. That figure could go even higher - industry tracker ShipMatrix has penciled in a 14% increase for FedEx.
FedEx is positioned for nearly 11% annual earnings per share (EPS) growth for the next five years, over 270 basis points faster than the S&P 500 during this period.