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UPS Stock Should Continue to Grace Your Portfolio: Here's Why

United Parcel Service UPS benefits from e-commerce growth and strong liquidity. The shareholder-friendly approach also bodes well for the company. However, the weak demand scenario is hurting UPS’ top line.

Factors Favoring UPS

United Parcel Service’s impressive e-commerce growth, driven by the convenience of online shopping, supports the growth of transportation companies like UPS. The 2022 agreement with ESW aligns with the growing cross-border e-commerce trend among millennials and Gen Z, enhancing the company’s e-commerce capabilities and positioning it for potential revenue growth by meeting evolving consumer demands.

Shareholder-friendly actions include a 15th consecutive annual dividend increase and a $5 billion share repurchase authorization. In 2024, UPS’ board of directors raised the quarterly cash dividend to $1.63 per share. For 2024, United Parcel Service expects to make dividend payments totaling $5.4 billion.

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The company expects weak shipping demand to improve in the second half of 2024, anticipating consolidated revenues to increase by 4-8% and adjusted operating profit by 20-30% year over year. Over the next three years, UPS plans to drive growth in premium markets and boost productivity. By 2026, United Parcel Service targets consolidated revenues in the band of $108-$114 billion and an adjusted operating margin exceeding 13%.

At the end of the first quarter of 2024, UPS' current ratio (a measure of liquidity) was pegged at 1.10. A current ratio of more than 1 is always desirable as it indicates that the company has enough cash to meet its short-term obligations. United Parcel Servicegenerated $3.31 billion of net cash from operating activities. Capital expenditures were $1.03 billion. Free cash flow was $2.28 billion.

Key Risks

UPS is grappling with an economic slowdown driven by geopolitical uncertainty and high inflation, leading to a decline in package volumes. As a result, average daily volumes (consolidated) fell 7.4% year over year in the fourth quarter of 2023 and 3.2% in the first quarter of 2024.

Consolidated revenues of $21.7 billion marked a 5.3% decrease from the first quarter of 2023. The consolidated operating profit was $1.6 billion, down 31.5% from the first quarter of 2023. UPS expects 2024 revenues to range between $92 billion and $94.5 billion.

The deal with the Teamsters union will significantly increase labor costs. United Parcel Service projects wage and benefit costs to grow at a 3.3% compound annual rate over the next five years, with a high proportion booked in the first year. The contract, expiring in August 2028, will add about $500 million in costs in the second half of this year. UPS expects compensation and benefits expenses to rise 4.8% year over year in 2024.

Shares of UPS have declined 20.1% in the past year compared with its industry’s drop of 14.1% in the same period.

Zacks Investment Research
Zacks Investment Research


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Zacks Rank

United Parcel Service currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include SkyWest SKYW and Kirby Corporation KEX, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

SkyWest has an expected earnings growth rate of 787% for the current year.

SKYW has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 128%. Shares of SkyWest have jumped 101.4% in the past year.

KEX has an expected earnings growth rate of 42.5% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 10.3%. Shares of Kirby have climbed 61.4% in the past year.

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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report

SkyWest, Inc. (SKYW) : Free Stock Analysis Report

Kirby Corporation (KEX) : Free Stock Analysis Report

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