FedEx (NYSE:FDX) and United Parcel Service (NYSE:UPS) changed the world by making rapid delivery of goods a reality. Demand for fast shipping has skyrocketed as e-commerce has grown, and both companies have worked hard to capture their fair share of the market. But which of these transportation giants' stock is likely to be the smarter investment under current conditions? Let's compare.

Valuation and stock performance

FedEx and UPS are in the same business, but their share prices have behaved quite differently over the past year. FedEx has shot higher by 34% since July 2016, while UPS has posted only a 3% rise over the same period.

Even with the big boost to its stock price, FedEx still looks like a better value using simple metrics. It currently trades at a trailing earnings multiple of 19, while UPS shares sit at 29 times trailing earnings. Even when you consider forecast earnings, FedEx retains an advantage: Its forward multiple of 14 is considerably below UPS' 17.5. Based on both stock momentum and valuation, FedEx looks like a more promising stock.

FedEx planes at an airport.

Image source: FedEx.


The story is much different on the dividend front. FedEx pays an inconsequential dividend that yields just 0.9% currently, whiile United Parcel Service's much stronger dividend yields close to 3% right now.

UPS prioritizes dividends as a key part of its strategy to return capital to shareholders. It pays out about 80% of its earnings in dividend distributions, compared to just 15% for FedEx. FedEx has begun an effort to narrow that gap over the past several years, taking its payout per share from $0.15 per share in 2014 to $0.50 currently. Yet given its more-dependable track record of growth in quarterly payments to shareholders, UPS remains the more solid pick for income investors.

Growth prospects and risks

Both FedEx and United Parcel Service have immense growth prospects, and they're working to take full advantage. FedEx's most recent results surprised investors with their strength, as the company took big steps toward integrating the recently acquired TNT Express business. The express delivery segment was once again the most important driver of profits for FedEx, reflecting the premium that customers are willing to pay for lightning-fast shipping. Yet the ground business contributed to its success during the quarter as well. FedEx expects double-digit growth in adjusted earnings per share in fiscal 2018, and investors are increasingly hopeful that major investments in restructuring, as well as the TNT acquisition, will start to pay off more clearly in the near future.

For UPS, the first quarter delivered overall revenue growth of 6%, and sales gains in all of its segments and major product categories. Domestically, strong demand for e-commerce deliveries sent segment revenue higher by 5%, and the supply chain and freight business posted double-digit percentage sales gains. UPS has faced some margin issues, but efforts to strengthen pricing have the potential to offset adverse factors and keep the bottom line healthy. In the long run, UPS will have to show that its strategic moves will be worth their short-term cost.

Internet retail will drive much of the proximate growth for both FedEx and UPS; which one captures more of it will depend largely one which executes better. With its sharper focus on express delivery -- and its cheaper stock valuation -- FedEx looks like the better buy between the two right now, but United Parcel Service, too, will have plenty of opportunities to boost earnings and reward shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.