RXO (RXO) stock surged early Monday after the company announced Sunday it would purchase UPS‘ (UPS) Coyote Logistics, the company’s freight-brokerage business, for slightly more than $1 billion. The deal comes just days before rival FedEx (FDX) closes the door on fiscal 2024 with fourth-quarter earnings.

↑
X

NOW PLAYING
With The Nasdaq Stretched, Here’s How We’re Rotating Into New Merchandise

Package delivery giant UPS said Sunday the deal is worth $1.025 billion, which comes in below the $1.8 billion UPS paid for Coyote Logistics in 2015. The transaction is expected to close by the end of 2024. UPS Chief Executive Carol Tome said in the news release Sunday that the sale to RXO “allows an even greater focus on our core business.”

The move by UPS comes as it has looked to reduce costs and streamline business in recent months. In late April, UPS reported a fifth straight quarterly earnings decline.

UPS stock edged up 0.6% during market action on Monday. RXO stock soared 14.7%. UPS stock has declined 13% in 2024. Meanwhile, FedEx has traded flat for the year, but has slipped 13% since hitting a high of 291.27 on March 22.

On Monday, Evercore ISI analyst Jonathan Chappell lowered the firm’s price target on FedEx to 318 from 351 and kept an outperform rating on the shares. Chappell also cut the price target on UPS stock to 145 from 157.

The analyst wrote Monday that Evercore’s estimates for both FedEx and UPS are trending lower for the to-be-reported quarters and through the firm’s forecast horizons.

FedEx Readies For Life Without USPS Contract

While UPS deals away its freight brokerage business, FedEx reports fiscal fourth-quarter earnings on Tuesday after the market closes. Analysts predict Q4 EPS will grow 8% to $5.34 with revenue increasing less than 1% to $22.05 billion.

For the full fiscal year, the expectation is for earnings to jump 19% to $17.77 per share on sales of $87.69 billion, a 3% drop compared to a year ago.

In March, the shipping heavyweight predicted full-fiscal year earnings of $17.25-$18.25, which would represent around 15% growth vs. fiscal 2023. At the end of the third quarter, FedEx said it expected revenue to be “pressured by volatile macroeconomic conditions negatively affecting customer demand for our services and constraining yield growth,” for the remainder of the fiscal year.

However, while analysts expect solid earnings growth for 2024, most of the attention will be on guidance for fiscal 2025, as FedEx prepares for life without a contract with the United States Postal Service (USPS).

The company announced in early April that it had not reached an agreement with USPS on a new contract and will go it alone when the current deal expires at the end of September. The contract brought FedEx around $2 billion annually for the past two-decades. The USPS has replaced FedEx with UPS.

Ahead of Tuesday’s FedEx earnings release, analysts project fiscal 2025 earnings of $20.92 per share and revenue totaling $90.47 billion.

Both FedEx and UPS have lost ground to Amazon.com (AMZN) in parcel deliveries in recent years. In 2022, Amazon delivered more packages in the U.S. than UPS. Amazon previously beat out FedEx in 2020.

The USPS remains the largest parcel delivery service by volume.

FedEx stock has a 52 Composite Rating out of a best-possible 99. Its shares also have a 32 Relative Strength Rating and an 85 EPS Rating.

Please follow Kit Norton on X @KitNorton for more coverage.

YOU MAY ALSO LIKE:

Is Tesla Stock A Buy Or A Sell?

Get Full Access To IBD Stock Lists And Ratings

Learning How To Pick Great Stocks? Read Investor’s Corner

Is Rivian A Buy Right Now After It Launched Its New Product Line?

Market Pauses As Nvidia Reverses Lower; Two Titans Near Buy Points