FedEx (NYSE:FDX) had a hard time delivering for investors in 2019, but the company has hit the fast lane this year.

Motley Fool contributor Lou Whiteman joins "The Wrap" host Jason Hall on Motley Fool Live to talk about FedEx's recently completed quarter and to explain why the future looks bright for this company as e-commerce continues to take center stage.

Lou Whiteman: I should say FedEx is not on a normal calendar, so you have to go all the way back to September for these results. But FedEx had single-handedly, the best quarter of any company I cover. I've been following FedEx for almost 25 years. I've never seen them deliver results like this. The stock, this is one that lost to the market by I think it was about 35 percentage points in 2019, in part due to macro issues, the tariffs weighed on them. Also, because this was a company that was spending heavy to ramp up to increase network capacity.

They didn't know COVID was coming, but boy, has that spending paid off in 2020. FedEx had already planned to go to seven-day, year-round residential delivery. They've done that, and with that added capacity, they've been able to take advantage of some of the COVID-induced surge in e-commerce spending. For the quarter, they nearly doubled analyst expectations. On revenue, they came in nearly $2 billion ahead of expectations. They just blew it out of the park. The stock is up 77% for the year. It's up almost 200% since the March lows, and the best part is arguably there is still a lot of room to run here. The stock still trades at a real discount to UPS (NYSE:UPS). FedEx's price earnings right now is about 13 times compared to UPS's 17 times.

By some reports, FedEx and UPS capacity for the holiday season is already near selling out. These companies have real pricing power right now. FedEx management, on their post-earnings call, said they are preparing for a peak like no other this year. They're hiring 70,000 people. They're expanding sorting facilities. They're automating more facilities. They're going to be ready for it, and if you believe, as I do, that some of this may go down post-COVID, but e-commerce is not going away, this growth is going to stay and become the new normal, FedEx is very well positioned for it.

The initial commentary from truckers and other transports, they're seeing strong pricing power, a lot of demand heading into 2021. FedEx free cash flow should continue to improve with all this investment now in the past or toward the end. FedEx and UPS, thanks to their cold-storage expertise, are also likely to be a stealth winner in the vaccine distribution effort. That's a likely boost through calendar 2021 at least, if not beyond.

There's just a lot to like about this company right now. They had a miserable 2019, and it was a wait for next year's story, and boy, has next year delivered for them.

Jason Hall: I think you're right, it's only next year that's going to be good. I agree, I think e-commerce is easy to overlook because there was a lot of concern that the growth of Amazon (NASDAQ:AMZN) and Amazon's investments in building out its own last mile was going to be a terrible thing for UPS and FedEx especially.

The reality is there's going to be a lot of winners in the e-commerce space, and they're not all going to be Amazon, Walmart (NYSE:WMT), and Target (NYSE:TGT) that are going to be giants that are going to try to control as much of that last-mile distribution as they can. Think about the growth of Shopify (NYSE:SHOP) and Shopify's retail partners that need to find access to low-cost shipment. They just don't have the scale to do it themselves. You have one retail operation. You depend on FedEx, and there's going to be millions of those companies that rely on FedEx. I love that. I think it's fantastic.

Lou Whiteman: Just to add to your point, if anything, the impact of the COVID is all of these brick-and-mortar retailers who are slowly finding religion on e-commerce have found it. Look at Target's year and so many others that we could talk about that are really a presence now. FedEx isn't going to get the Amazon business, but if they can get a lot of the everything-but-Amazon business, that is a huge market. It is growing, and that genie is not going back in the bottle. This is the new normal.

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