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Here's Why You Should Retain UPS Stock in Portfolio Now
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United Parcel Service, Inc. (UPS - Free Report) is being aided by rising demand for online shopping and a solid free cash flow. Nonetheless, increasing capital expenses are worrisome.
Factors Favoring UPS
We are encouraged by UPS' solid free cash flow. In 2021, UPS repurchased shares worth $500 million, up 130% year over year.
Concurrent with fourth-quarter 2022 earnings release, UPS’ board of directors has raised its quarterly cash dividend to $1.62 per share, effective from the first quarter of 2023. This marks the 14th consecutive year of a dividend increase.
Additionally, UPS has approved a $5 billion share-repurchase authorization, replacing the company’s existing buyback program. For full-year 2023, UPS expects making dividend payments of $5.4 billion and share repurchases of $3 billion.
Demand for online shopping has slowed down from the pandemic peak with the reopening of economy. However, the figures are still higher than the pre-pandemic levels. To meet the demand swell in the holiday season, UPS added more than 100,000 seasonal workers throughout the United States.
Key Risks
Rising capital expenses add to the company’s woes. In 2022, UPS incurred $4,769 million of capital expenditures, up 13.7% year over year. Management now expects current-year capital expenditures to be $5.3 billion, well above 2022 levels. The elevated capex guidance, even though aimed at long-term benefits, may dent current-year profit margins. Our estimate for 2023 capex is also pegged at $5.3 billion.
Zacks Rank
Currently, UPS carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Allegiant Travel Company (ALGT - Free Report) .
Copa Holdings, which presently sports a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 765.6% and 75.4% growth, respectively, on a year-over-year basis.
Allegiant, currently flaunting a Zacks Rank #1, also benefits from buoyant air-travel demand. With air-travel demand rising in the United States, operating revenues improved 8.5% year over year in 2022.
Management expects revenues to remain strong in 2023 as well. In first-quarter 2023, operating revenues increased 29.9% on a year-over-year basis. For second-quarter and full-year 2023, ALGT’s earnings are estimated to surge 366% and 192%, respectively, on a year-over-year basis.
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Here's Why You Should Retain UPS Stock in Portfolio Now
United Parcel Service, Inc. (UPS - Free Report) is being aided by rising demand for online shopping and a solid free cash flow. Nonetheless, increasing capital expenses are worrisome.
Factors Favoring UPS
We are encouraged by UPS' solid free cash flow. In 2021, UPS repurchased shares worth $500 million, up 130% year over year.
Concurrent with fourth-quarter 2022 earnings release, UPS’ board of directors has raised its quarterly cash dividend to $1.62 per share, effective from the first quarter of 2023. This marks the 14th consecutive year of a dividend increase.
Additionally, UPS has approved a $5 billion share-repurchase authorization, replacing the company’s existing buyback program. For full-year 2023, UPS expects making dividend payments of $5.4 billion and share repurchases of $3 billion.
Demand for online shopping has slowed down from the pandemic peak with the reopening of economy. However, the figures are still higher than the pre-pandemic levels. To meet the demand swell in the holiday season, UPS added more than 100,000 seasonal workers throughout the United States.
Key Risks
Rising capital expenses add to the company’s woes. In 2022, UPS incurred $4,769 million of capital expenditures, up 13.7% year over year. Management now expects current-year capital expenditures to be $5.3 billion, well above 2022 levels. The elevated capex guidance, even though aimed at long-term benefits, may dent current-year profit margins. Our estimate for 2023 capex is also pegged at $5.3 billion.
Zacks Rank
Currently, UPS carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors interested in the Zacks Transportation sector are Copa Holdings, S.A. (CPA - Free Report) and Allegiant Travel Company (ALGT - Free Report) .
Copa Holdings, which presently sports a Zacks Rank #1 (Strong Buy), is aided by improved air-travel demand. We are encouraged by the company’s initiatives to modernize its fleet. CPA's focus on its cargo segment is also impressive. You can see the complete list of today’s Zacks #1 Rank stocks here.
For second-quarter and full-year 2023, CPA’s earnings are expected to register 765.6% and 75.4% growth, respectively, on a year-over-year basis.
Allegiant, currently flaunting a Zacks Rank #1, also benefits from buoyant air-travel demand. With air-travel demand rising in the United States, operating revenues improved 8.5% year over year in 2022.
Management expects revenues to remain strong in 2023 as well. In first-quarter 2023, operating revenues increased 29.9% on a year-over-year basis. For second-quarter and full-year 2023, ALGT’s earnings are estimated to surge 366% and 192%, respectively, on a year-over-year basis.