We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
UPS Stock Falls 11% in a Month: Thinking of Buying the Dip?
Read MoreHide Full Article
Shares of Atlanta-based package delivery company United Parcel Service (UPS - Free Report) have not had a good time on the bourses of late, declining 11.2% over the past 30 days. UPS has underperformed its industry in a month, and also the S&P 500, of which this transportation company is a key member. Additionally, UPS’ price performance compares unfavorably with that of rival FedEx (FDX - Free Report) in the same timeframe.
One-Month Price Comparison
Image Source: Zacks Investment Research
Currently trading at $128.95, the stock rebounded 4.7% from its 52-week low of $123.12 on Aug 8. However, it still reflects a significant 25.4% discount from its 52-week high of $172.75.
In fact, UPS shares have plummeted more than 37% over the past two years. Additionally, this transportation company’s stock has slipped below its 50-day moving average, which is an important indicator for gauging market trends and momentum. Falling below this average suggests a bearish trend, often prompting caution to investors.
50-Day Moving Average
Image Source: Zacks Investment Research
Given the significant pullback in UPS shares currently, investors might be tempted to snap up the stock. But is this the right time to buy UPS? Let’s find out.
Lackluster Q2 & Bearish Guidance
On Jul 23, UPS shares took a severe beating, declining in double digits following lower-than-expected second-quarter 2024 revenues and earnings per share. Weak freight demand and soft pricing led to the dismal show.
Quarterly earnings of $1.79 per share missed the Zacks Consensus Estimate of $1.98 and declined 29.5% year over year. Revenues of $21.82 billion fell short of the Zacks Consensus Estimate of $22.31 billion and decreased 1.1% year over year.
Geopolitical uncertainty and high inflation continue to hurt consumer sentiment and growth expectations, particularly in Asia and Europe. The weak demand scenario due to the economic slowdown has also resulted in a decline in the volume of packages shipped. With shipping volumes likely to remain weak, UPS cut its revenue outlook for the current year.
For 2024, UPS now anticipates revenues to be around $93 billion (prior view: $92-$94.5 billion). For 2024, UPS now expects the consolidated adjusted operating margin to be around 9.4% compared with the prior expectation of 10%-10.6%.
The 2024 guidance includes revenues from its truckload brokerage business Coyote Logistics, which UPS is selling to RXO, Inc. (RXO - Free Report) . The transaction is expected to close by 2024-end, thereby freeing up cash that UPS aims to deploy for buying back shares worth $500 million.
Other Headwinds
The deal with the Teamsters union is likely to increase labor costs significantly. Per UPS management, due to this deal, wage and benefit costs will increase at a 3.3% compound annual growth rate for the next five years. We expect the company’s expenses on compensation and benefits to increase by 3.3% in 2024 from 2023 actuals.
Rising capital expenses further add to its woes. In 2022, UPS incurred $4.77 billion of capital expenditures, up 13.7% year over year. Capex increased further to $5.2 billion in 2023. The capex guidance of $4 billion for 2024 is not very low. Capital expenditure spending doesn't come to an end after buying an asset. Companies need to keep up with repairs and maintenance to protect the value of the investment. Such elevated capex in this weak demand scenario may dent current-year profit margins.
UPS' financial metrics indicate that its leverage is elevated, a massive negative for its shareholders. The long-term debt burden of the company was $20.2 billion at the end of the second quarter of 2024. UPS' long-term debt burden at 2023-end was lower at $18.9 billion.
Long-Term Debt to Capitalization
Image Source: Zacks Investment Research
Unfavorable Valuation Picture
From a valuation perspective, UPS’ valuation is elevated. Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), UPS is currently trading at 10.66X compared with the industry’s 10.57X. The current value is near its median of 10.68X over the last five years. UPS’ trailing EV/EBITDA multiple is significantly higher than rival FedEx.
Image Source: Zacks Investment Research
Given the headwinds surrounding the stock, earnings estimates are southbound, as shown below.
Image Source: Zacks Investment Research
Some Tailwinds
It is hardly surprising that the pace of e-commerce demand growth has slowed from the levels witnessed at the peak of the pandemic with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. E-commerce demand strength should continue to support the growth of transportation players like UPS. The 2022 UPS-ESW agreement aligns with the thriving cross-border e-commerce trend, especially among millennials and Gen Z. This strategic move enhances UPS' e-commerce capabilities, positioning the company for potential revenue growth by meeting evolving consumer demands.
UPS demonstrated financial strength with $5.3 billion in free cash flow generated in 2023. Shareholder-friendly actions, including a 15th consecutive annual dividend increase and a $5 billion share repurchase authorization, bode well. In 2024, UPS’ board of directors raised its quarterly cash dividend to $1.63 per share. In 2024, UPS expects to make dividend payments of $5.4 billion.
To Sum Up
There is no doubt that impressive e-commerce growth and shareholder-friendly actions are serving UPS well. However, given the abovementioned headwinds, it is not at all advisable to buy the dip in this Zacks Rank #4 (Sell) stock until the company demonstrates substantial improvement in its performance. With declining earnings estimates, the stock is witnessing negative investor sentiments.
Image: Bigstock
UPS Stock Falls 11% in a Month: Thinking of Buying the Dip?
Shares of Atlanta-based package delivery company United Parcel Service (UPS - Free Report) have not had a good time on the bourses of late, declining 11.2% over the past 30 days. UPS has underperformed its industry in a month, and also the S&P 500, of which this transportation company is a key member. Additionally, UPS’ price performance compares unfavorably with that of rival FedEx (FDX - Free Report) in the same timeframe.
One-Month Price Comparison
Currently trading at $128.95, the stock rebounded 4.7% from its 52-week low of $123.12 on Aug 8. However, it still reflects a significant 25.4% discount from its 52-week high of $172.75.
In fact, UPS shares have plummeted more than 37% over the past two years. Additionally, this transportation company’s stock has slipped below its 50-day moving average, which is an important indicator for gauging market trends and momentum. Falling below this average suggests a bearish trend, often prompting caution to investors.
50-Day Moving Average
Given the significant pullback in UPS shares currently, investors might be tempted to snap up the stock. But is this the right time to buy UPS? Let’s find out.
Lackluster Q2 & Bearish Guidance
On Jul 23, UPS shares took a severe beating, declining in double digits following lower-than-expected second-quarter 2024 revenues and earnings per share. Weak freight demand and soft pricing led to the dismal show.
Quarterly earnings of $1.79 per share missed the Zacks Consensus Estimate of $1.98 and declined 29.5% year over year. Revenues of $21.82 billion fell short of the Zacks Consensus Estimate of $22.31 billion and decreased 1.1% year over year.
Geopolitical uncertainty and high inflation continue to hurt consumer sentiment and growth expectations, particularly in Asia and Europe. The weak demand scenario due to the economic slowdown has also resulted in a decline in the volume of packages shipped. With shipping volumes likely to remain weak, UPS cut its revenue outlook for the current year.
For 2024, UPS now anticipates revenues to be around $93 billion (prior view: $92-$94.5 billion). For 2024, UPS now expects the consolidated adjusted operating margin to be around 9.4% compared with the prior expectation of 10%-10.6%.
The 2024 guidance includes revenues from its truckload brokerage business Coyote Logistics, which UPS is selling to RXO, Inc. (RXO - Free Report) . The transaction is expected to close by 2024-end, thereby freeing up cash that UPS aims to deploy for buying back shares worth $500 million.
Other Headwinds
The deal with the Teamsters union is likely to increase labor costs significantly. Per UPS management, due to this deal, wage and benefit costs will increase at a 3.3% compound annual growth rate for the next five years. We expect the company’s expenses on compensation and benefits to increase by 3.3% in 2024 from 2023 actuals.
Rising capital expenses further add to its woes. In 2022, UPS incurred $4.77 billion of capital expenditures, up 13.7% year over year. Capex increased further to $5.2 billion in 2023. The capex guidance of $4 billion for 2024 is not very low. Capital expenditure spending doesn't come to an end after buying an asset. Companies need to keep up with repairs and maintenance to protect the value of the investment. Such elevated capex in this weak demand scenario may dent current-year profit margins.
UPS' financial metrics indicate that its leverage is elevated, a massive negative for its shareholders. The long-term debt burden of the company was $20.2 billion at the end of the second quarter of 2024. UPS' long-term debt burden at 2023-end was lower at $18.9 billion.
Long-Term Debt to Capitalization
Unfavorable Valuation Picture
From a valuation perspective, UPS’ valuation is elevated. Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), UPS is currently trading at 10.66X compared with the industry’s 10.57X. The current value is near its median of 10.68X over the last five years. UPS’ trailing EV/EBITDA multiple is significantly higher than rival FedEx.
Given the headwinds surrounding the stock, earnings estimates are southbound, as shown below.
Some Tailwinds
It is hardly surprising that the pace of e-commerce demand growth has slowed from the levels witnessed at the peak of the pandemic with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. E-commerce demand strength should continue to support the growth of transportation players like UPS. The 2022 UPS-ESW agreement aligns with the thriving cross-border e-commerce trend, especially among millennials and Gen Z. This strategic move enhances UPS' e-commerce capabilities, positioning the company for potential revenue growth by meeting evolving consumer demands.
UPS demonstrated financial strength with $5.3 billion in free cash flow generated in 2023. Shareholder-friendly actions, including a 15th consecutive annual dividend increase and a $5 billion share repurchase authorization, bode well. In 2024, UPS’ board of directors raised its quarterly cash dividend to $1.63 per share. In 2024, UPS expects to make dividend payments of $5.4 billion.
To Sum Up
There is no doubt that impressive e-commerce growth and shareholder-friendly actions are serving UPS well. However, given the abovementioned headwinds, it is not at all advisable to buy the dip in this Zacks Rank #4 (Sell) stock until the company demonstrates substantial improvement in its performance. With declining earnings estimates, the stock is witnessing negative investor sentiments.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.