United Parcel Service UPS and FedEx FDX,  with a significant market capitalization of $93.3 billion and $58 billion, respectively, dominate and define the Zacks Transportation—Air Freight and Cargo industry. These two well-established names immediately come to mind when discussing parcel delivery and logistics. 

These two companies account for the vast majority of parcels delivered. Given this backdrop, let’s take a closer look at their fundamentals, growth prospects and challenges.

The Case for UPS

United Parcel Service has been experiencing revenue weakness for some time now as geopolitical uncertainty and high inflation continue to impact consumer sentiment and growth expectations. The tariff-induced economic uncertainty has added to its woes. 

UPS expects average daily volumes to decrease 8.5% in 2025 from 2024 actuals. A slowdown in online sales in the United States, apart from a softness in global manufacturing activity, has been hurting the demand scenario. For 2025, on a consolidated basis, United Parcel Service expects revenues to be $89 billion, way below the Zacks Consensus Estimate of $94.6 billion at the time of the fourth-quarter 2024 earnings release. UPS expects to lower its volumes with its largest customer, Amazon.com AMZN, by more than 50% by June 2026. This bleak guidance did not include any significant impacts from tariff policies. Given the current tariff-related tensions, a further cut in guidance from UPS cannot be ruled out.

In February, UPS management announced a 0.6% hike in its quarterly dividend payout to $1.64 per share (annualized $6.56 per share). No doubt this represents UPS’ shareholder-friendly approach, but questions about the sustainability of its dividend arise. United Parcel Service’s elevated dividend payout ratio (the percentage of net income paid out as dividends) of 84% highlights the concern associated with its ability to maintain dividend payouts over the long term.

We remind investors that in the early 2020s, when UPS’ business was flourishing, driven by exponential e-commerce growth during the peak pandemic period, the company made huge dividend payments. Free cash flow has been on a decline since touching a high of $9 billion in 2022.

Currently, UPS' elevated dividend payout is hurting its operational flexibility, with free cash flow barely covering the dividend. At 2024-end, free cash flow was $6.3 billion, not much above its dividend payments of $5.4 billion. United Parcel Service expects to generate free cash flow of around $5.7 billion in 2025. Dividend payments are expected to be roughly $5.5 billion. 

UPS’ expansion efforts look good. In a bid to expand its network, United Parcel Service announced in 2024 that it would acquire Estafeta, a Mexican express delivery company. Through this acquisition, UPS looks to capitalize on increased cross-border opportunities amid Mexico's manufacturing boom and global supply chain shifts. The deal builds on a commercial agreement inked between the two companies in 2020. In August 2024, UPS inked a deal with Ninja Van Malaysia to expand the reach of its express delivery services in Malaysia.

UPS exited 2024 with cash and cash equivalents of $6.3 billion against a long-term debt of $19.4 billion, resulting in a debt-to-capital ratio of 0.54, which is less than the industry average of 0.49. 

The Case for FDX

FedEx is realigning its costs under a companywide initiative called DRIVE, given the post-COVID adjustments in business. DRIVE initiatives are expected to result in savings worth $2.2 billion in fiscal 2025 (ending May 31, 2025) after effecting savings worth $1.8 billion in fiscal 2024.  The cost-reduction initiatives include reducing flight frequencies, parking aircraft and cutting staff. The DRIVE program refers to a comprehensive program to improve the company’s long-term profitability. 

The company’s efforts to reward its shareholders are commendable. In June 2024, FedEx raised its quarterly dividend by 10% to $1.38 per share (or $5.52 annually).  FDX is also active on the buyback front. 

Geopolitical uncertainty, tariff-induced uncertainty and higher inflation continue to hurt consumer sentiment and growth expectations. While releasing third-quarter fiscal 2025 results last month, management gave downbeat guidance for earnings per share. The adjusted earnings guidance was lowered to the $18-18.6 per share band from the previously expected range of $19-20 per share. FedEx now expects revenues to be flat to slightly down year over year versus the prior forecast of approximately flat. The guidance for capital spending was revised down to $4.9 billion from $5.2 billion.

Despite challenges, it’s worth noting that the company has the brand and the network to continue generating steady cash flows in the long run. FDX’s endeavors to expand its operations are commendable. Prudent investments enable FDX to extend its services and solidify comprehensive offerings. 

FDX exited the third quarter of fiscal 2025 with cash and cash equivalents of $5.1 billion against long-term debt of $19.5 billion, resulting in a debt-to-capital ratio of 0.43, which compares favorably with the industry as well as UPS. FDX’s lower debt-to-capital ratio implies that it relies less on debt financing and has a stronger equity position. 

Price Performance and Valuation 

In a year’s time, UPS shares have plunged 26.6%, underperforming the industry. On the other hand, FDX shares have performed comparatively better, declining 11.1% in a year and outperforming its industry.

One-Year Price Comparison

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UPS is trading at a forward sales multiple of 1.06X, above its industry’s reading of 1X. FDX’s forward sales multiple sits at 0.65X. FDX  has a Value Score of B, while UPS has a Value Score of C.

UPS’ P/S F12M Vs. FDX & Industry

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How Do Estimates Compare for UPS & FDX?

The Zacks Consensus Estimate for UPS’ 2025 sales implies a year-over-year decline of 3%, while the consensus mark for earnings indicates marginal growth. The Zacks Consensus Estimate for UPS’ 2026 sales implies year-over-year growth of 1.7%, while the consensus mark for earnings indicates 12.7% growth. EPS estimates for 2025 and 2026 have been trending southward over the past 60 days.

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The Zacks Consensus Estimate for FDX’s fiscal 2025 revenues indicates flat sales year over year, while the consensus mark for earnings indicates 3.3% growth. The Zacks Consensus Estimate for FDX’s fiscal 2026 sales and earnings indicate 3.2% and 11.6% growth, respectively, year over year.  EPS estimates for fiscal 2025 and 2026 have been trending southward over the past 60 days.

Image Source: Zacks Investment Research

End Note

Both FDX and UPS are facing revenue pressure due to a weak demand scenario. New union negotiations and a decline in the volume of packages shipped are common concerns. Both these heavyweights are looking to drive growth in the face of weak demand by cutting costs. However, their approach differs. UPS is investing in automation and robotics to improve efficiency apart from reducing its reliance on Amazon.com. On the other hand, FedEx has undergone a major restructuring and is completing a long-term cost-saving program.

FDX appears to be more attractive than UPS from a valuation standpoint. FDX also scores over UPS in terms of price performance. Moreover, while UPS’ earnings are projected to grow 9.3% over the next five years, the reading is higher for FDX at 11.5%. FDX also scores over UPS in terms of financial leverage. Given these factors, FDX seems a better pick than UPS now. 

While FDX carries a Zacks Rank #3 (Hold), UPS is currently #4 Ranked (Sell).  

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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This article originally published on Zacks Investment Research (zacks.com).

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