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Parcel delivery giant FedEx is better-positioned than its competitors, according to HSBC. The bank initiated FedEx with a buy rating, while placing hold ratings on peers UPS and DHL. Its price target of $330 for FedEx shares implies upside of 26.4% from Thursday’s close. “We think its Drive and Network 2.0 transformation should set it on a path to narrow the operating margin and valuation gap with UPS,” analyst Prash Jain wrote in a Friday note. The company launched its “Drive and Network 2.0” plan earlier in 2023. The initiative involves consolidating several operating units to increase efficiency, which management estimates could result in $4 billion in benefits. “In the near term, while both FedEx and UPS face macro headwinds to demand and package volumes growth, FedEx appears relatively better placed as its cost and efficiency initiatives should help offset cost pressures while UPS faces challenges with its labor costs and the pressure to win back volumes that it lost in the run up to its labor deal with Teamsters this year,” Jain said. The bank forecasts single-digit growth in global parcel volumes over the next five years, compared to double-digit growth pre-pandemic. A weak global macro backdrop will also weigh down international package volume growth, the analyst added. To be sure, there has been improvement in monthly volume growth trends for FedEx, Jain noted. “With respect to FedEx, its international export packages turned positive in June, likely driven by the relaunch of international economy service in EMEA since May this year, which had previously been withdrawn during the pandemic.” The analyst noted Amazon’s rapid expansion, which he believes could lead to muted volume growth for FedEx and its peers. E-commerce is a key driver of parcel delivery volumes, Jain noted. In 2022, Amazon managed to top FedEx and establish itself as third in the U.S. for parcel delivery volumes. Shares of FedEx were up 0.9% Friday before the bell. The stock has rallied nearly 54% year to date. —CNBC’s Michael Bloom contributed to this report.
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