JPMorgan upgrades FedEx, believes blowout earnings mean good things for UPS too

Published Wed, Jul 1 20207:26 AM EDTUpdated Wed, Jul 1 20209:40 AM EDT

(This story is for CNBC PRO subscribers only.) Shares of FedEx jumped more than 16% in early trading on Wednesday after the company's earnings topped analyst estimates in the fourth quarter , and JPMorgan believes the shipper will continue to outperform. The firm upgraded the stock to an overweight rating on Wednesday, after holding a neutral rating on shares since March 2019. Central to analyst Brian Ossenbeck's bull thesis on the stock is FedEx's ability to raise prices, which he believes could ultimately help competitor UPS as well. "FedEx's efforts to grow profitably across each segment are gaining traction despite challenging operating conditions brought about by COVID-19," he wrote in a note to clients. "FedEx set a more constructive tone on raising the price of capacity in the 'new normal' than we expected with holiday peak season surcharges applying to large customers for the first time in three years," he added. While commercial volume slowed during the fourth quarter, FedEx saw a jump in residential deliveries as consumers flocked online amid the pandemic. The company earned $2.53 per share for the quarter on an adjusted basis, beating the $1.52 per share profit analysts polled by Refinitiv had been expecting. Revenue came in at $17.36 billion which also topped expectations, although it did represent a year-over-year decline. "We believe F4Q results can help reverse the streak of negative earnings revisions ... and merit a more constructive view when combined with the improving narrative on parcel pricing power which no longer centers on waiting for the USPS to significantly raise rates," said JPMorgan. The firm has a December 2021 price target of $188, which is 34% above where the stock closed on Tuesday. And strength at FedEx will ultimately carry over to UPS, too. "We expect the results [from FedEx] will support [UPS], especially with FedEx setting the stage for a more constructive view on rates that does not include the USPS," wrote Ossenbeck. "The new CEO of UPS was expected to take the mantle of price discipline, but we believe FedEx's stance will help make it easier to continue the narrative of higher yields." UPS is expected to report second quarter earnings later in July. Shares of UPS traded 6% higher.

A FedEx delivery truck is seen on August 07, 2019 in Fort Lauderdale, Florida.

Joe Raedle | Getty Images

(This story is for CNBC PRO subscribers only.)

Shares of FedEx jumped more than 16% in early trading on Wednesday after the company's earnings topped analyst estimates in the fourth quarter, and JPMorgan believes the shipper will continue to outperform.

The firm upgraded the stock to an overweight rating on Wednesday, after holding a neutral rating on shares since March 2019.

Central to analyst Brian Ossenbeck's bull thesis on the stock is FedEx's ability to raise prices, which he believes could ultimately help competitor UPS as well.