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UPS Rides on E-Commerce Growth & Solid Cash Flow Generation

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We recently issued an updated report on United Parcel Service, Inc. (UPS - Free Report) .

UPS is being aided by a significant increase in home deliveries amid the ongoing coronavirus pandemic. Notably, the need for door-to-door delivery of essentials during this crisis is escalating. Owing to the surge in residential delivery volumes and strong outbound demand from Asia, UPS performed very well in 2020.

We are encouraged by UPS' solid free cash flow. In 2019, the company generated adjusted free cash flow in excess of $4.1 billion.  Even in this coronavirus- hit scenario, UPS generated impressive free cash flow of $5.1 billion in 2020.

Moreover, the company exited 2020 with cash and equivalents of $6,316 million, which is 10% above 2019 levels.  

Meanwhile, decline of 5.5% in 2020 adjusted operating profit at the U.S. Domestic Package segment raises concern. Operating margin was down 170 basis points in 2020 year over year. Persistent slump in operating profit at this key segment might hurt the stock.

Zacks Rank & Other Stocks to Consider

UPS currently carries a Zacks Rank #2 (Buy).

Investors interested in the broader Zacks Transportation sector can also consider stocks like Kansas City Southern , Triton International Limited and Herc Holdings Inc. (HRI - Free Report) . Kansas City Southern carries a Zacks Rank #2 (Buy), while Triton and Herc Holdings sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Kansas City Southern, Triton and Herc Holdings is pegged at 15%, 10% and 31.2%, respectively.

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