FedEx, UPS shares rally as analysts see big holiday season surcharges boosting their bottom lines

A United Parcel Service worker delivers packages in New York City.
Stephanie Keith | Getty Images

(This story is for CNBC Pro subscribers only). 

The looming holiday shopping season could pose a challenge to shipping companies already managing a surge in e-commerce, but that challenge should be a profitable one.

As FedEx and UPS have geared up for a busy sprint to the end of the year, including hiring tens of thousands of workers, Wall Street has showered the stocks in a flurry of estimate hikes and upgrades. Those are in part due to the earnings boost expected from surcharges, which can boost bottom lines and direct the largest customers into off-peak shipping times. 

The use of peak surcharges is not new for the shipping companies, but they could be a bigger factor with e-commerce demand already elevated do the pandemic.

"The industry's significant action on surcharges appears to be changing shipper behavior, creating potential for a smoother peak season that allows for more consistent fixed cost absorption," Deutsche Bank said in a note upgrading FedEx to buy from hold.

More In Pro Insight

CNBC ProThe summer rally has been very bullish, but strategists say a big sell-off next month is possible
CNBC Pro'Pretty compelling value': Analyst picks his top global stocks to withstand slowing growth
CNBC ProTesla's valuation doesn't make sense until it hits this level, fund manager says