Although the number of e-commerce packages is expected to grow from 50 million to 100 million by 2026, the air freight and cargo industry has underperformed the broader market by about 4% year to date (YTD). Investors have remained cautious as they try to make sense of larger trends affecting the space, such as tariffs slowing global growth, the dynamic evolution of online shopping, and how key strategic moves will shape the industry's landscape.
More recently, news that the United States Postal Service (USPS) recorded a 3.2% decline in second quarter (Q2) parcel delivery didn't do much to ease concerns. However, JPMorgan analyst Brian Ossenbeck argued that the metric got taken out of context, noting that USPS now only has a 30% share of online retail giant Amazon.com, Inc.'s (AMZN) last-mile deliveries, down from 60% in 2017, and its revenue per unit actually increased 8%. He also mentioned that the agency's publicly traded rivals can pursue opportunities in the e-commerce world as they see fit but need to be mindful of the post office's pricing structure.
"Overall, we believe the USPS remains a neutral factor for UPS and FedEx, which have to bend the cash cost curve in the U.S. on their own to successfully navigate the e-commerce wave," Ossenbeck told Barron's.
From a technical perspective, the three industry leaders discussed below trade near crucial support levels and sit poised to add gains into the back half of 2019. Let's take a more in-depth look at each delivery giant and point out several trading opportunities.
FedEx Corporation (FDX)
FedEx Corporation (FDX) provides global transportation, e-commerce, and business services. The $39.87 billion company, which pioneered overnight delivery in 1973, recently announced that it's ending its partnership with Amazon at the end of the month to focus on the larger e-commerce market. The move allows FedEx to forge and develop partnerships with other big-box retailers, such as Walmart Inc. (WMT) and Target Corporation (TGT), who want to ramp up online sales.
"This does not come as a surprise to us," Citi Research analyst Christian Wetherbee said in a client note, per USA Today. "The company is clearly trying to move away from its partnership with Amazon, and we believe it is using this move as a selling point to win new non-Amazon business," Wetherbee added. FedEx stock issues a 1.68% dividend yield and trades down 3.08% YTD as of Aug. 16, 2019.
FedEx shares have struggled to gain traction in 2019 after several mixed quarterly reports. The most recent decline that commenced in late July has pushed the stock toward the psychological $150 level, where price finds crucial support from the December and June swing lows. Traders may decide to wait for a reversal, such as a hammer or bullish engulfing pattern, before entering. Consider booking profits near $179, where the price may encounter resistance from a horizontal line and the 200-day simple moving average (SMA). Cut losses if the stock fails to hold the 12-month low at $149.80.
United Parcel Service, Inc. (UPS)
United Parcel Service, Inc. (UPS) provides letter and package delivery, specialized transportation, logistics, and financial services in the United States and globally. The company has invested between $5 billion and $6 billion in new hubs and innovative technologies over the past few years, which places it in a strong position to capitalize on Amazon's next-day shipping, which the e-commerce titan launched for its Prime members in the second quarter. The delivery giant's other initiatives include faster sorting centers, seven-day delivery starting in 2020, expanded hours, additional pickup locations, and more sophisticated package tracking for customers. Trading at $113.90 with a market capitalization of $97.81 billion and offering a 3.37% dividend yield, UPS stock has delivered an 18.90% YTD gain, outperforming the integrated shipping and logistics industry average by 8.31% over the same period as of Aug. 16, 2019.
The freight company's upbeat second quarter earnings helped the stock break above a $25 range on above-average volume. The 50-day SMA has also recently crossed above the 200-day SMA in what traders refer to as a "golden cross" – a signal that indicates the emergence of a new uptrend. A retracement to the initial breakout level, which now acts as a support area, provides a high-probability entry point at $114. Those who buy the stock should look for a retest of the January 2018 high at $128.88. Implement risk management by placing a stop-loss order beneath this month's low at $112.22 and moving it to the breakeven point if price climbs above the July swing high.
Expeditors International of Washington, Inc. (EXPD)
Expeditors International of Washington, Inc. (EXPD) provides logistics services in the Americas, North Asia, South Asia, Europe, the Middle East, Africa, and India. The Seattle, Washington-based company delivered mixed Q2 results. Earnings came in at $153.15 million, or 88 cents per share, surpassing the Street expectation of 80 cents per share to deliver a 10% earnings surprise. Meanwhile, revenue of $2.04 billion fell short of the consensus forecast by $10 million. Bottom- and top-line year-over-year growth for the period came in at 11% and 4%, respectively. Management attributes the improvement to higher revenues from its ocean freight and customs brokerage segments as well as a lower effective tax rate. As of Aug. 16, 2019, Expeditors International stock has a $12.02 market cap and is up 3.83% on the year. Investors receive a 1.42% dividend yield.
The international freight specialist's stock has remained stuck in a trading range for the past three months, with neither the bulls nor bears able to take control of price action. Traders who favor range-bound strategies should look for an entry near $69, where the stock finds support from the late May/early June swing low. Once in a trade, place a stop about $2 below the entry price to limit downside losses. Think about selling 50% of the position at resistance around $77 and the remaining 50% near the April swing high just above $80.