UPS Shares Beat Other Transportation Stocks With Amazon’s Help

(Bloomberg) -- In a brutal market rout that has spared almost no corner of the financial market, one American brand is showing extraordinary resilience.

Shares of United Parcel Service Inc. have held their own in the past month as other transportation companies plunged amid the global coronavirus pandemic that’s brought daily life to a screeching halt. UPS has been bolstered by its deep ties to Amazon.com Inc.

“UPS is participating in the e-commerce ‘boom’ as people don’t go to stores and stay home and order online,” Cowen analyst Helane Becker said in an interview. According to Cowen’s estimates, about 14% of UPS’s volume is Amazon-related versus none at all at FedEx. “In fact, we believe that most of the volume FedEx rejected is being flown by UPS,” Becker said.

As travel restrictions expanded and officials in cities around the country urged people to avoid stepping outside unless absolutely necessary, transportation stocks from airlines and car rentals to rails and truckers all declined sharply. The Dow Jones Transportation Average has dropped 35% since the close of trading on Feb. 19, which was when the virus-fueled meltdown began in U.S. markets.

In comparison, UPS shares have fallen just 9.8% over the same period, making it the second best performer on the index. The top place was taken by Matson Inc., which transports freight between the continental U.S. and ports in Hawaii, Guam, Micronesia and China.

The company’s direct competitor, FedEx Corp., has seen its shares drop about 31% in the last month.

UPS, which had $74 billion in revenue in 2019, also has a more dominant position in ground transportation than in the air and is less exposed to Asia compared to FedEx, Becker added. FedEx had sales of about $70 billion for its fiscal 2019 ended May 31.

Stay-at-home stocks, or companies that sell products or services that people are likely to use while at home for a prolonged duration, have been outperforming amid the widespread market rout. Netflix Inc. and Amazon are two examples.

UPS’s steady financials are also helping. According to Robert W Baird analyst Benjamin Hartford, UPS “possesses some unique potential catalysts in this increasingly challenging operating market,” including a robust 4.5% dividend yield, its ongoing efforts to transform the business and a new, incoming CEO, Carol Tome, who was named earlier this month.

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