The efficacy data from the COVID-19 vaccine test devloped by Pfizer and Germany's BioNTech certainly excited the market, and the euphoria was extended with positive news from the Moderna candidate too. However, the two vaccines both require cold-chain transportation and storage. In addition, two other leading vaccine options, Sputnik V from Russia's Gamaleya Research Institute, and UK pharma company AstraZeneca's vaccine, also require cold storage, albeit at less challenging temperatures. Whichever way you look at it, the world is going to require cold chain capability, and Carrier (CARR 0.27%), Trane Technologies (TT 0.69%), and UPS (UPS -0.14%) are three companies set to provide it.
Carrier and Trane
Both industrial companies' exposure comes through offering transport refrigeration solutions and any storage solutions they may develop. While it's easy to dismiss the opportunity as a one-off boost to sales, it makes more sense to think of it as an opportunity to accelerate adoption of cold chain solutions in general.
For example, many developing countries have very little cold chain capability for the transportation and storage of, say, food and pharmaceuticals, so the necessity of investing in order to distribute vaccines will spur future investment. It's an investment theme that is already running strong in 2020, as the global explosion of interest in e-commerce and online groceries is creating favorable market conditions for the industry.
Trane's exposure comes mainly from its transportation and storage solutions business Thermo King. Management previously disclosed that Thermo King was responsible for around $2 billion in revenue in 2019, which represents around 15% of its revenue. Meanwhile, Carrier's refrigeration segment was responsible for 18% of revenue in the first nine months.
Think about both companies' refrigeration-focused businesses as being highly cyclical but on an underlying uptrend. The reason for the cyclicality comes down to the fact that demand is tied to the trucking market -- about as cyclical an industry as you can find.
The uptrend comes from long-term growth in demand for cold-chain transportation for frozen and perishable food. In addition, investment in the cold chain is an effective way to reduce food waste and improve food safety.
As such, the likely increase in cold chain capability in order to globally transmit the vaccine is likely to stimulate the already growing investment in refrigerated transportation and storage. That's good news for Carrier and Trane.
In a similar vein, the need to transport the vaccine plays into the hands of the long-term strategic plans of companies like FedEx, and in particular, UPS. Going back to the third-quarter earnings call, UPS CEO Carol Tome outlined how UPS is expanding its "freezer farm capacity by installing validated freezers that range from negative 20 to negative 80 degrees Celsius" in Kentucky and the Netherlands.
In addition, Tome said a "healthcare team is supporting clinical trials across all stages for COVID-19 vaccines. Early involvement gives us valuable data and insights to design commercial distribution plans and manage the logistics for these complex products."
Clearly, UPS is preparing to play a major role in the global distribution of vaccines, but just as with Carrier and Trane, it shouldn't be seen as a one-off event. In fact, healthcare and life sciences represents one of the four key strategic growth imperatives for the company -- the others are international high growth, e-commerce, and small and medium-sized businesses (SMBs).
These initiatives were outlined by former CEO David Abney in 2018 , and Tome is building on them with the changes she's making to how UPS does business.
In a nutshell, Tome is trying to refocus UPS toward being "better, not bigger." The focus is not so much on chasing volume, but rather on growing in the most profitable areas such as healthcare and SMBs. Considering that distributing the vaccine will strengthen and develop new relationships with healthcare customers, it's reasonable to expect the benefit to be long-lasting for UPS.
What it means to investors
Distributing the vaccine will bring near-term benefits to all these companies, and it will also play to the development of each company's long-term aims. Carrier and Trane will see increased interest in their cold chain solutions, and UPS will develop its healthcare capability in line with its strategic objectives.