BENEFIT FROM THE BACK AND FORTH
Despite all the crises, global trade in goods cannot be suppressed. Logistics companies benefit from this – and so do vigilant investors.
A massive 4.35 trillion. € is the value of the entire trade in goods between the European Union alone and all trading partners worldwide; trade around the globe is many times that amount. In order to do this smoothly, you need a sophisticated strategy, and logistics companies provide that. The industry itself is showing strong signs of life — crisis or not — as shown by M&A activities, as a study by “Strategy&”, the global strategy consultancy of the auditing and consulting firm PwC, shows. Although global mergers and acquisitions in the transportation and logistics industry declined slightly in the first half of 2022, the year before was a record year.
A total of 129 deals worth a total of $125.9 billion were announced between January and June 2022. This means that the first half of the year is only slightly below the five-year average of 134 mergers and acquisitions per half-year. The deal volume reached its highest half-year value since 2017. The drivers of this solid M&A development are freight-related deals, which were responsible for 72% of the transactions; the remaining 28% are attributable to mergers in the passenger transport sector. Strategic investors were particularly active, participating in almost every second deal (46%).
The largest takeover of the first half of the year made a significant contribution to the high deal volume: Blackstone and the Italian Benetton family have announced that they will acquire the remaining 66.6% of the Italian transport infrastructure group Atlantia for US$ 52 billion via a joint investment vehicle buy.
Incidentally, according to Strategy& analysts, China is performing noticeably weakly in the M&A half-year balance: In the Middle Kingdom, deal activity in the industry is at its lowest level in ten years. In the first half of the year, Chinese transport and logistics companies were involved in only 15% of all global deals. This trend could continue. You can benefit
from the boom in logistics companies — and it’s worth taking a look at Fedex shares. Federal Express Corporation Inc., as it is called by its full name, was founded in 1971 in Little Rock, Arkansas and is a global American courier and logistics company. The headquarters is in Memphis, Tennessee. Under the aegis of founder Frederick W. Smith, around 550,000 employees generated sales of $83.9 billion and an annual net profit of $5.23 billion last year. The company’s equity ratio was 29.20% in 2021.
Fedex pays a dividend of $1.15 four times a year; that is significantly higher than the 75 cents from the previous year. The company started the business with 14 Dassault Falcon 20s and now operates one of the world’s largest air cargo fleets: as of half-year 2022, the company operated a total of 696 aircraft. For comparison: Lufthansa and its subsidiary Eurowings have 450 aircraft. With acquisitions such as that of its competitor TNT, Fedex constantly expanded its empire. The name is one of the most common in the USA today — not least because of the feature film “Cast Away” with Tom Hanks in the lead role.
The stock — at $156 — rose more than 4% in a single trading day in early October. Shortly afterwards, a vote from the major Swiss bank UBS was published: After an investor meeting with management, the financial institution set the rating for Fedex to “Buy” with a price target of US$ 215. According to UBS, the meeting provided deeper insights into the logistics group’s current challenges and strategic priorities.
Credit Suisse, another Swiss bank, was indifferent but definitely positive. She lowered the price target for Fedex from US$236 to US$205, but left the rating at “Outperform”: The considerable disappointment with the profit development highlighted the risks from the overall economy. Investors looking for a silver lining could probably assume that the U.S. is slightly better positioned in this regard compared to Asia and Europe, analysts said. This bodes well for stocks being observed in the transportation sector, which are generally more exposed to the North American economy, Credit Suisse said.
One of Fedex’s competitors is United Parcel Service of America, Inc., abbreviated UPS. Founded in Seattle in 1907 as the American Messenger Company by James E. Casey and renamed United Parcel Service in 1919, the company today employs 534,000 people in more than 220 countries worldwide.
25.2 million packages are delivered every day, generating revenue of $97.3 billion in 2021. UPS operates four subsidiaries, including UPS Airlines with almost 300 aircraft. The shares were most recently at $165 each and have gained more than 35% in value over the last three years. The prospects are good: Credit Suisse raised the price target for UPS from $198 to $204 after the last quarterly figures and left the rating at “Outperform”. The unexpectedly strong results are evidence that the logistics group can master the economic challenges, according to the Swiss analysts.
Deutsche Post is also one of the major players in the logistics market. The company, based in Bonn, emerged from the former Deutsche Bundespost authority in 1995; privatization took place at the end of 1999. The group, which has almost 600,000 employees, has been operating under the name Deutsche Post DHL Group since 2015. The international logistics business is run under the DHL brand, the national postal business under the Deutsche Post and DHL brands. Last year, sales were €81.75 billion, and profits increased by a strong 69.6% to €5.1 billion.
These excellent figures also make the analysts raise their fingers for Deutsche Post: The analysis firm Warburg Research has left the rating for Deutsche Post at “Buy” (with a price target of €51). At last price of €35 per share, this offers juicy price potential; the paper gained around 14% in value in October alone. The bank believes that the preliminary information for the third quarter shows that, despite the economic uncertainties, the results are anything but in danger. This should turn attention back to the extremely favorable valuation. The dividend yield is attractive, according to Warburg Research.
Deutsche Bank Research also reported a positive response to Deutsche Post: It raised the price target for the logistics company from €43 to €45 and left the rating at “Buy” – logistics companies had a solid third quarter overall, wrote analysts Andy Chu, Deutsche Post is one of the analyst’s “top picks”. BernsteinResearch put Deutsche Post on “Outperform” and sees a price target of €42 within the realm of possibility.
