UBS senior analyst Tom Wadewitz, who covers freight transportation, told clients that Amazon's latest push to open itssupply chain networkto businesses beyond its own marketplace triggered an "overdone" sell-off in transport names, including UPS, FedEx, and C.H. Robinson.
Wadewitz said the risk is not new, noting that Amazon's supply chain service has been around since 2023. He said the pullback has created attractive entry points in select transport stocks, particularly UPS, FedEx, and C.H. Robinson.
"While we view AMZN's strategy of selling transportation services as a negative for transports generally,it is not a new risk and the supply chain service is also not new. We believe the significant sell-off in transport names was overdone," Wadewitz said.
The main risk is in B2B parcel, Wadewitz said, adding that Amazon's growing third-party shipping ambitions could pressure UPS and FedEx over the medium term.
However, he said the threat is not a surprise, since Amazon has been active in parcel delivery for years. He also noted that there is limited near-term risk in international express because Amazon's air fleet is mostly domestic narrow-body aircraft.
The immediate market reaction in transport stocks, includingUPS, FedEx, and C.H. Robinson, to Amazon's news was a roughly 10% drop at the start of the week. Some of those losses had been recovered by mid-week.
Wadewitz explained to clients why the "pullback creates attractive entry points for UPS, FDX, and CHRW" ...
We believe the cost reduction and network efficiency initiatives of UPS and FDX support margin improvement and EPS growth on a multi-year basis. While AMZN's focus on growing in transport markets is a risk, we also don't view it as a new risk.
In our view, investors already assume that the addressable domestic parcel market for UPS and FDX is a slow growth market (eg in part due to impact of AMZN).
We view the ~10% pullbacks in UPS and FDX as providing attractive entry points.
Source: ZeroHedge News
