Case 11

In: Business and Management

Submitted By bwinde1
Words 426
Pages 2
2. Why did FedEx’s stock price outstrip UPS’s during the initiation of talks over liberalized air cargo routes between the U.S. and China? Assuming a perfectly efficient stock market, how might one interpret a 14% increase in FedEx’s market value of equity? Since the talks of a transportation agreement between China and the Us began in mid Feb both UPS and FedEx stock began a steady incline. Fedex had the largest share of the Chinese market with 11 weekly flights, almost twice UPS with 6 weekly flights, and served 220 Chinese cities. Their volumes in China had grown more than 50% bt 2003 and 2004.
FedEx had the reputation of being innovative, and an operational leader, whereas UPS was know as the industry follower.
UPS had problems with unionization, and FedEx did not.
FedEx set a goal of producing “superior financial returns” meaning increasing earnings and maximizing value to shareholders.

I also believe the lower price to earnings ratio of FedEx, 22.93 vs 29.01 and a higher EPS made FedEx a much more attractive stock to investors. With FedEx’s already strong position in China, expected to be the worlds largest economy in 2009, it would potentially be much easier for them to continue to capture the growing Chinese market that UPS, with much less of a presence.

I believe the 14% increase in FedEx vs 3% increase in UPS is largely due to the position FedEx had in the Chinese market with 11 weekly flights almost twice UPS with 6 only weekly flights. Also FedEx’s volumes in China had grown more than 50% between 2003 and 2004. FedEx had also had the reputation of being innovative, and an operational leader, whereas UPS was know as the industry follower. Investors thought that after the transportation agreement was completed FedEx would be in a better position to take advantage of the 195 additional weekly flights by using economies of scale and…...

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