That means that, at least currently, UPS also enjoys much fatter margins than FedEx. But each company's margins have been up and down over the past five years, and it's unclear whether one corporation has a consistently clear lead over the other.
The future of these metrics is made even more unclear by FedEx's $4.9 billion proposed acquisition of European shipping company TNT Express. The move would rev FedEx's revenue up to UPS levels, but the purchase isn't cheap and FedEx could see its bottom line shrink as it absorbs acquisition costs in the years to come.
Stock prices, valuations, and dividends
While UPS may be a bigger corporation, the past five years haven't been better for its stock. FedEx shareholders have enjoyed an S&P 500 -beating 52% gain in the last half-decade, compared to a lagging 31% increase for UPS investors. That boost, combined with FedEx's relatively smaller earnings, also means that investors are paying more for FedEx shares: Its 32.6 P/E ratio is nearly double UPS' 18.2.
But while UPS and FedEx are similar businesses, their shareholder value creation models differ significantly. As its TNT Express acquisition suggests, FedEx is focused on aggressive growth. UPS, meanwhile, is more interested in steadily improving sales. These differing strategies are primarily reflected in each company's dividend decisions: While FedEx currently offers a token 0.7% yield, UPS shareholders can enjoy a consistently higher 3.1% rate.
Which is a better buy?
When considering whether UPS or FedEx Corporation is a better stock buy, the answer depends on the investor. For income investors looking for a more conservative investment, UPS offers size and stability that FedEx currently doesn't have. But for investors interested in getting in on growth potential, FedEx is firing on all cylinders. Its relatively expensive stock price could turn out to be well warranted if it's able to topple UPS from its profitable perch, causing a double-whammy jump in FedEx stock and drop in UPS shares. But that future is far from certain, and thus carries its own risks.
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The article Better Buy: FedEx Corporation vs. United Parcel Service originally appeared on Fool.com.
Justin Loiseau owns shares of United Parcel Service and several cardboard boxes. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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