UPS vs. FedEx: Which Logistics Giant Looks Like the Better Long-Term Play?​

UPS (NYSE: UPS) and FedEx (NYSE: FDX) are two of the largest logistics giants that act as middlemen for global commerce. They deliver products people buy online, and with consulting giant McKinsey projecting 7%-9% annual growth through 2040 for the e-commerce industry, both companies should be busy for a while.

While you will see many UPS and FedEx trucks in your lifetime, there are a few things to consider when comparing their stocks.

FedEx has been the better performer

FedEx stock has outperformed UPS year to date and over the past five years. The company is also growing faster based on its 6.8% year-over-year revenue growth, versus UPS's 3.3% decline in their latest quarters, respectively.

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Part of the story is how both companies are approaching growth. FedEx CEO Raj Subramaniam said that the company "successfully executed [its] growth strategy and advanced [its] network transformation." FedEx is spinning off its freight segment to prioritize ground and air shipments.

UPS CEO Carol Tomé shared remarks about strengthening "revenue quality" and "sustained margin expansion." Tomé also mentioned growth, but the core message is that UPS is shrinking now in exchange for higher profit margins. It's not growing, while FedEx continues to gain market share. FedEx isn't trimming its Amazon volume, while UPS has committed to doing that in a multiyear plan.

UPS has the higher valuation despite conceding market share

UPS trades at a PEG ratio of 1.85 based on analysts' forward 5-year earnings estimates, compared to FedEx's 1.41, suggesting the latter is slightly cheaper based on expected growth. The former also trades at a slightly higher price-to-sales ratio. The higher valuation also comes as UPS is losing revenue while FedEx is gaining ground.

It's not a good look for UPS, and the company plans to lay off 30,000 workers this year as it reduces Amazon shipments. The layoffs make sense since UPS will have fewer packages to ship, but it also means revenue should continue to dip in the upcoming quarters. Fewer drivers result in fewer deliveries and fewer sales.

UPS has touted the move as a way to boost the average revenue per delivery, resulting in higher profit margins. However, FedEx has retained more of its staff. The company recently laid off 850 workers in Texas and cut 500 jobs in France, but those numbers aren't anywhere close to UPS's layoff numbers.

UPS is in the middle of the biggest worker purge in its history. While these layoffs will eventually lead to higher profit margins, they are a significant headwind to revenue growth, despite the company's focus on smaller businesses.

To top it all off, FedEx has been expanding its net profit margins faster than UPS in recent quarters. FedEx grew its net income by 29% year over year in the most recent quarter, while UPS only inched up its net profits by 4.1% year over year.

FedEx looks like the clear winner for now, as it delivers growth and margin expansion, while UPS's large number of layoffs can boost margins but limit its growth opportunities moving forward.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.