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Logistics giants face turbulence as Amazon Air spreads wings

Amazon’s (AMZN) evolution into a diversified conglomerate has been marked by several surprises, and the rapid growth of Amazon Air is one of them. Nobody could have imagined that the cargo delivery service, which was introduced on an experimental basis a few years ago, would give competition to the world’s biggest freight companies so soon.

According to research firm Morgan Stanley, the growth of Amazon Air has gone unnoticed by the larger market so far. The revelation came as a warning to logistics giants FedEx (FDX) and United Parcel Service (UPS), sending their stocks crashing in early trading Tuesday. With Amazon Air already eating into the market share of others in the sector, it could pose a big threat to the leading delivery service providers once the ongoing expansion program gathers momentum.

According to research firm Morgan Stanley, the growth of Amazon Air has gone unnoticed by the larger market so far

Currently, the consensus rating on FedEx by analysts covering the stock is buy, with the majority of them upgrading their recommendations recently. The recommendations of the remaining analysts range from outperform to hold. In the case of United Parcel Service, nearly half of the market watchers recommend hold, followed by others who have assigned buy and outperform ratings.

In the latest research note, the Morgan Stanley analyst lowered the price target on FedEx to $230 from $240 and USP to $87 from $92. The downgrade has reinforced the strong buy status of both FedEx and UPS, especially after Tuesday’s decline.

FedEx misses Q1 profit estimates, stock slides

Meanwhile, the chances of Amazon Air giving direct competition to the well-established freight companies in the near future are remote, though the former is planning to expand the 40-unit delivery fleet and increase the capacity of its air hub. When it comes to the price factor, the low costs of Amazon’s service could become a matter of concern for FedEx and UPS in the future.

USP shares traded sharply lower in the early trading hours Tuesday after the announcement by Morgan Stanley, suffering an intraday loss of more than 5%. The stock has dropped about 15% since the beginning of the year. Meanwhile, FedEx pared most the recent gains that marked its recovery from the one-year low witnessed in October. Both the stocks underperformed the Dow Jones Transportation Average during the year-to-date period.

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