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.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for third-quarter 2024 earnings was revised upward in the past 60 days and is currently pegged at $1.65 per share. Additionally, the consensus mark implies a 5.1% uptick from the year-ago actuals. The Zacks Consensus Estimate for third-quarter 2024 revenues is currently pegged at $22.26 billion, suggesting a 5.7% uptick from the year-ago actuals.
Image Source: Zacks Investment Research
UPS has an impressive earnings surprise history, as reflected in the chart below.
Image Source: Zacks Investment Research
Earnings Whispers for Q3
Our proven model predicts an earnings beat for UPS this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
We expect high labor costs to have hurt UPS’ bottom-line performance in the quarter under review. We expect expenses on compensation and benefits to increase 5.2% in the third quarter of 2024 from the prior year. The labor deal inked with the International Brotherhood of Teamsters last year is likely to have increased labor costs.
Apart from the adverse effects of labor negotiations, weak demand due to macroeconomic uncertainties, including inflationary pressures and geopolitical tensions, is expected to have resulted in a decline in the volume of packages shipped. Revenues are likely to have suffered due to the weak demand scenario.
Low fuel costs are expected to have aided UPS’ bottom-line performance in the September quarter. Oil price has declined 14% in the July-September period.
Price Performance & Valuation of UPS Stock
Due to the lackluster demand scenario, the stock has performed unimpressively on the bourses this year. UPS stock has depreciated 13.9% on a year-to-date basis, performing worse than its industry’s 6.6% decline. The S&P 500 composite index rose 22.5% in the same time frame, while the Zacks Transportation sector gained 3%. UPS has also lagged rival FedEx (FDX - Free Report) and another industry player, Air Transport Services (ATSG - Free Report) on a year-to-date basis.
YTD Price Comparison
Image Source: Zacks Investment Research
From a valuation perspective, UPS is trading at a discount compared to the sector, based on its price/sales ratio. The company is trading at a forward sales multiple of 1.21 compared to its sector’s 1.89. The company has a Value Score of B. The reading is also below its median of 1.54 over the last five years.
Image Source: Zacks Investment Research
Investment Thesis for UPS Stock
It is hardly surprising that the pace of growth of e-commerce demand 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 UPS. The company demonstrates financial strength with $5.3 billion in free cash flow generated in 2023. Its valuation is attractive as well.
UPS is currently suffering from revenue weakness as geopolitical uncertainty and higher inflation continue to hurt consumer sentiment and growth expectations. The weak demand scenario has resulted in a decline in the volume of packages shipped. 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%. High labor costs are hurting the bottom line.
Final Thoughts
We can safely conclude that investors should refrain from rushing to buy UPS, which is facing quite a few challenges, ahead of its earnings release on Oct. 24. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains. UPS’ current Zacks Rank supports our thesis.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Should You Add UPS Stock to Your Portfolio Ahead of Q3 Earnings?
United Parcel Service (UPS - Free Report) is scheduled to report third-quarter 2024 results on Oct. 24, before market open.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for third-quarter 2024 earnings was revised upward in the past 60 days and is currently pegged at $1.65 per share. Additionally, the consensus mark implies a 5.1% uptick from the year-ago actuals. The Zacks Consensus Estimate for third-quarter 2024 revenues is currently pegged at $22.26 billion, suggesting a 5.7% uptick from the year-ago actuals.
UPS has an impressive earnings surprise history, as reflected in the chart below.
Earnings Whispers for Q3
Our proven model predicts an earnings beat for UPS this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
UPS has an Earnings ESP of +3.24% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Likely to Shape UPS’ Q3 Results
We expect high labor costs to have hurt UPS’ bottom-line performance in the quarter under review. We expect expenses on compensation and benefits to increase 5.2% in the third quarter of 2024 from the prior year. The labor deal inked with the International Brotherhood of Teamsters last year is likely to have increased labor costs.
Apart from the adverse effects of labor negotiations, weak demand due to macroeconomic uncertainties, including inflationary pressures and geopolitical tensions, is expected to have resulted in a decline in the volume of packages shipped. Revenues are likely to have suffered due to the weak demand scenario.
Low fuel costs are expected to have aided UPS’ bottom-line performance in the September quarter. Oil price has declined 14% in the July-September period.
Price Performance & Valuation of UPS Stock
Due to the lackluster demand scenario, the stock has performed unimpressively on the bourses this year. UPS stock has depreciated 13.9% on a year-to-date basis, performing worse than its industry’s 6.6% decline. The S&P 500 composite index rose 22.5% in the same time frame, while the Zacks Transportation sector gained 3%. UPS has also lagged rival FedEx (FDX - Free Report) and another industry player, Air Transport Services (ATSG - Free Report) on a year-to-date basis.
YTD Price Comparison
From a valuation perspective, UPS is trading at a discount compared to the sector, based on its price/sales ratio. The company is trading at a forward sales multiple of 1.21 compared to its sector’s 1.89. The company has a Value Score of B. The reading is also below its median of 1.54 over the last five years.
Investment Thesis for UPS Stock
It is hardly surprising that the pace of growth of e-commerce demand 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 UPS. The company demonstrates financial strength with $5.3 billion in free cash flow generated in 2023. Its valuation is attractive as well.
UPS is currently suffering from revenue weakness as geopolitical uncertainty and higher inflation continue to hurt consumer sentiment and growth expectations. The weak demand scenario has resulted in a decline in the volume of packages shipped. 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%. High labor costs are hurting the bottom line.
Final Thoughts
We can safely conclude that investors should refrain from rushing to buy UPS, which is facing quite a few challenges, ahead of its earnings release on Oct. 24. Instead, they should monitor the developments pertaining to the stock closely for a more appropriate entry point, as an erroneous and hasty decision could affect portfolio gains. UPS’ current Zacks Rank supports our thesis.