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Why UPS Stock Soared in June

By Lee Samaha – Jul 3, 2020 at 3:50PM

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The outlook is starting to look brighter for package delivery companies.

What happened

Shares in United Parcel Service (UPS 0.96%) rose 11.5% in June, according to data provided by S&P Global Market Intelligence. In common with its direct peer FedEx (FDX 2.01%), which rose 7.4% in June, UPS stock had a good month on the back of a growing realization that transportation demand had bottomed in April.

E-commerce packages.

Image Source: Getty Images.

Indeed, this was a viewpoint that was confirmed by FedEx when it gave its fourth quarter earnings at the end of June. FedEx's chief marketing and communications officer Brie Carere noted that "we have experienced week-over-week improvement in our business since hitting the bottom in mid-April" during the company's earnings call. Moreover, the Association of American Railroads believes that a recovery in rail traffic began in early May and accelerated through June.

Everything points to a gradual improvement in the industrial economy. That's good news for a transportation stock like UPS because business deliveries tend to be higher-margin work. Meanwhile, it's well understood that the COVID-19 pandemic has caused a surge in e-commerce deliveries in the business to consumer (B2C) market.

So what

The gradual improvement in the business to business (B2B) market encourages UPS investors to believe that B2B activity will start to normalize toward previous levels.

Meanwhile, the surge in B2C deliveries caused by the coronavirus pandemic will result in a structural shift in demand which UPS and FedEx can start to take advantage of through better pricing strategy and increasing productivity in their networks. Both companies have made substantive investments in upgrading and expanding their networks in recent years.

Now what

Following FedEx's well received fourth quarter earnings, UPS investors will be hoping their company can deliver a similarly positive set of results at the end of July. FedEx produced a sequential improvement in margin in its ground segment, indicating it was coming to grips with the margin challenges inherent in a shift in revenue mix from B2B to B2C. UPS investors will be hoping it can do the same.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

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Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
FDX
$151.46 (2.01%) $2.99
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
UPS
$163.09 (0.96%) $1.55

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