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Here’s Why UPS, FedEx Got Buy Ratings in Bullish Goldman Note

Delivery companies United Parcel Services and FedEx were set to rise Wednesday after Goldman Sachs initiated coverage on the stocks with buy ratings.

A buy rating at Goldman Sachs means the firm believes there is at least a 20% upside for a stock. 

E-commerce will be a strong catalyst for the industry going forward with growth expected to come at 15%, giving the two companies enough volume to fill their networks. 

"Our long-term view on the sector is favorable, and we believe that recent concerns about 'digital disruptors' and Amazon are overdone in the near term. We do not discount the risk that these companies represent to the 'incumbents', however even though the competitive pressures are real, sector valuations more than reflect the concern," analyst Jordan Alliger wrote. 

Goldman Sachs is confident that UPS will leverage its capital investment into domestic profit improvement. The firm also believes that the company's 13.6x trading multiple is attractive compared to its five-year average a 17x trading multiple. 

Meanwhile, FedEx's ability to leverage its ground automation spend into margin expansion "should enable FDX to regain its profit growth footing," Goldman Sachs said.

UPS fell 0.2% to $101.55 in trading, while FedEx was up 0.97% to $160.73.

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