UPS Stock might jump due to Strong Earnings, Share Buybacks, and Positive Outlook

Today we are looking at United Parcel Service, Inc. (NYSE: UPS), to determine if the UPS stock is a good buy. We will look at UPS financial ratios, analyst ratings, and valuation to determine a UPS stock forecast and price. What does UPS Do? United Parcel Service, Inc. provides letter and package delivery, transportation, logistics, and related services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of letters, documents, small packages, and palletized freight through air and ground services in the United States. The International Package segment provides guaranteed day and time-definite international shipping services in Europe, Middle East, Africa, Canada, and other countries/continents. Laying out Information for a UPS Stock Forecast Who are United Parcel Service, Inc.'s Competitors? In order to undergo a comparable analysis (to determine UPS stocks value), we need to first outline who UPS's competitors are. These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to UPS, and have a market cap similar to UPS (if possible). By keeping this in mind, I found the following list of companies to be some of UPS stocks closest competitors: FDX, EXPD, CHRW, and ZTO United Parcel Service's Recent Earnings have been Great UPS Earnings (Yearly): UPS Revenues: In FY 2021, UPS experienced a yearly increase in revenues of $12.66B (or 14.96%) resulting in a total revenue figure of $97.29B. UPS Cost of Revenues: In FY 2021, UPS experienced a yearly increase in their cost of revenues of $7.36B (10.62%), resulting in a total revenue figure of $76.71B. Since the increase (of 10.62%), in UPS's cost of revenue was lesser (by -4.34%) than the increase (of 14.96%) in UPS's revenues, we should expect that UPS experienced an increase  in their FY gross profits. UPS Gross Profit: In FY 2021, UPS experienced a yearly increase in their gross profit of $5.3B (or 34.66%) resulting in a total gross profit of $20.58B. This icrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY. UPS EBITDA: In FY 2021, UPS experienced a yearly increase in their EBITDA of $15B (or 286.08%) resulting in a total EBITDA of $20.24B. This increase (of 286.08%) stems from the fact that UPS experienced a increase in their gross profits of 34.66% (as we saw in the previous bullet point). UPS Net Income: In FY 2021, UPS experienced a yearly increase in their net income of $11.55B (or 859.79%) resulting in a total net income of $12.89B. UPS EPS: As a result of UPS's increase in net income of $11.55B, UPS's EPS also increased (by $13.22) from $1.65 in FY 2020 to $14.87 in FY 2021 Overall, UPS had a fantastic financial performance in 2021, which is mostly thanks to the impacts that COVID-19 had on consumer purchasing and preferences. As a result of COVID many customers and businesses switched to e-commerce. A necessary component of such a shift is to have a delivery system in place to get your product to the paying customer, which requires you to ship them a package. This switch has been music to the ears of shipping giants like UPS, Fedex, DHL, and many more. However, 2021 might have been a "outlier" of a year, as it blew their (pre-covid to a certain extent) 2020 results out of the water. However, now that e-commerce has become the new normal, UPS's earnings should start to slow down and potentially top-off somewhere. With that being said, let's look at how their Q1 2022 results compare to their Q4 2021 results to get a better idea of current (new normal) performances. UPS Earnings (Quarterly): UPS Revenues: In Q1 2022, UPS experienced a quarterly decrease in revenues of $-3.39B (or -12.22%) resulting in a total revenue figure of $24.38B. UPS Cost of Revenues: In Q1 2022, UPS experienced a quarterly decrease in their cost of revenues of $-2.14B (-9.99%), resulting in a total revenue figure of $19.32B. Since the decrease (of -9.99%), in UPS's cost of revenue was greater (by 2.23%) than the decrease (of -12.22%) in UPS's revenues, we should expect that UPS experienced an decrease in their Q1 gross profits. UPS Gross Profit: In Q1 2022, UPS experienced a quarterly decrease in their gross profit of $-1.25B (or -19.79%) resulting in a total gross profit of $5.06B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4. UPS EBITDA: In Q1 2022, UPS experienced a quarterly decrease in their EBITDA of $-559M (or -11.43%) resulting in a total EBITDA of $4.33B. This decrease (of -11.43%) stems from the fact that UPS experienced a decrease in their gross profits of -19.79% (as we saw in the previous bullet point). UPS Net Income: In Q1 2022, UPS experienced a quarterly decrease in their net income of $-431M (or -13.93%) resulting in a total net income of $2.66B. UPS EPS: As a result of UPS's decrease in net income of $-431M, UPS's EPS also decreased (by $-0.48) from $3.53 in Q4 2021 to $3.05 in Q1 2022 Overall, it seems as though UPS had a poor financial performance as many of their financial metrics shrunk, most notably their EPS (by $-0.48), as well as their net income (by $-431M), and other metrics (as you can tell from the above bullet points). On the surface it appears as though UPS's earnings might have already peaked, however, Q4 2021 is the holiday season, which is very beneficial and profitable for shipping companies like UPS. As a result, a better way to gauge their earnings is based off of their performance relative to analyst expectations (as they likely expected their revenues to decline after the holiday season. However, UPS stock beat their EPS estimate by $0.17 (or 5.9%), as they reported an EPS of $3.05 for the quarter (compared to their estimated EPS of $2.88). This shows us a vastly different story than just their earnings figures (as a result of the seasonality of UPS's business. UPS Recent Buybacks and Potential Future Share Dilution As part of their Q1 2022 earnings release, UPS stated that they currently have 874M Shares Outstanding (weighted average), which is down -1M shares (from 875M shares outstanding in Q4 2021). Furthermore, UPS stock has up to 4M of shares that they can issue (thereby diluting UPS's stock). Overall, it is great that UPS has been buying back shares, as it increases the value of the shares of existing shareholders, and the fact that they have been buying back shares is an indicator that it may continue to happen into the future. However, we also need to keep in mind the fact that they can issue up to 4M shares of the UPS stock. If this were to happen it would decrease the value of existing shares by less than 1%, which is not a huge deal, but may mean that their next couple of quarters may not experience a "net buyback". Global Courier Industry Outlook is Bullish In a publication from globenewswire (based off of the research from "Researchandmarkets.com") they expect the global couriers and messengers industry to grow to a $1.25T industry by 2026, which would represent a 14.6% CAGR from their 2022 industry valuation of $725B. This is a very high expected growth rate, and is very good news for courier stocks (like UPS). 60% of Analysts' Ratings are Bullish Here is the current spread of UPS stock ratings. In total there are 30 UPS stock ratings, which fall in the following categories. 18 Buys 9 Holds 3 Sells Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if UPS stock is a buy or sell. Overall, the majority (60%) of analysts have given the UPS stock a "Buy" rating, and 27 of the 30 analysts have given either a "Buy" or "Hold" rating, which implies that 90% of analysts are either bullish, or have a neutral stance on the UPS stock (which is good news) UPS Stock Forecast 2022 Using a Comparable Analysis to Determine a UPS Price Forecast Price to Book (P/B): UPS's current P/B ratio is 10.05, compared to the average P/B ratio of UPS's peers being 5.47. This implies that UPS is undervalued and their share price should change by a factor of -45.57% to be at fair value (based on UPS's P/B compared to the P/B of their peers). Price to Equity (P/E): UPS stock P/E ratio is currently 14.48, compared to the average P/E ratio of UPS's peers being 17.67. This implies that UPS is overvalued and their share price should change by a factor of 22.03% to be at fair value (based on UPS's P/E compared to the P/E of their peers). Overall, UPS stock is overvalued and needs to experience a change in stock price of (an average of) -12.77% to be considered “at fair value”. This is a very quick comparable, and may have flaws. This may be the case when comparing UPS's P/B to their competitors as there is a large difference in their ratios. However, looking outside of the P/E and P/B ratios, UPS seems to have better or similar ratios to that of their competitors. Is UPS a good stock to buy right now? Overall, there are both positive and negative aspects of the UPS stock. Firstly, on the positive side: UPS earnings have been great recently with their monumental 2021 performance, as well as their recent EPS beat on their Q1 2022 earnings; UPS bought back more shares than they issued over the past quarter; analysts are generally bullish on the UPS stock; and their industry outlook implying a CAGR of 14.6%. Alternatively, on the negative side: UPS could issue up to 4M shares which would dilute their stock by less than 1% (not a huge deal); also my quick UPS comparable analysis implies that they are overvalued, however, it may be skewed a bit to the negative side (as discussed previously). Based off of weighing both the positive and negative aspects of the UPS stock, I think that they are undervalued and have room to grow. I think that 10-20% share price growth is attainable, and what I would be willing to exit a position in UPS at.

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UPS Stock might jump due to Strong Earnings, Share Buybacks, and Positive Outlook

Jun 24, 2022

bullish

general Analysis

[7 min Read]

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Photo by: Fidel Fernando

Today we are looking at United Parcel Service, Inc. (NYSE: UPS), to determine if the UPS stock is a good buy. We will look at UPS financial ratios, analyst ratings, and valuation to determine a UPS stock forecast and price.

What does UPS Do?

United Parcel Service, Inc. provides letter and package delivery, transportation, logistics, and related services. It operates through two segments, U.S. Domestic Package and International Package. The U.S. Domestic Package segment offers time-definite delivery of letters, documents, small packages, and palletized freight through air and ground services in the United States. The International Package segment provides guaranteed day and time-definite international shipping services in Europe, Middle East, Africa, Canada, and other countries/continents.

Laying out Information for a UPS Stock Forecast

Who are United Parcel Service, Inc.'s Competitors?

In order to undergo a comparable analysis (to determine UPS stocks value), we need to first outline who UPS's competitors are.

These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to UPS, and have a market cap similar to UPS (if possible).

By keeping this in mind, I found the following list of companies to be some of UPS stocks closest competitors:

FDX, EXPD, CHRW, and ZTO

United Parcel Service's Recent Earnings have been Great

UPS Earnings (Yearly):

  • UPS Revenues: In FY 2021, UPS experienced a yearly increase in revenues of $12.66B (or 14.96%) resulting in a total revenue figure of $97.29B.
  • UPS Cost of Revenues: In FY 2021, UPS experienced a yearly increase in their cost of revenues of $7.36B (10.62%), resulting in a total revenue figure of $76.71B. Since the increase (of 10.62%), in UPS's cost of revenue was lesser (by -4.34%) than the increase (of 14.96%) in UPS's revenues, we should expect that UPS experienced an increase in their FY gross profits.
  • UPS Gross Profit: In FY 2021, UPS experienced a yearly increase in their gross profit of $5.3B (or 34.66%) resulting in a total gross profit of $20.58B. This icrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY.
  • UPS EBITDA: In FY 2021, UPS experienced a yearly increase in their EBITDA of $15B (or 286.08%) resulting in a total EBITDA of $20.24B. This increase (of 286.08%) stems from the fact that UPS experienced a increase in their gross profits of 34.66% (as we saw in the previous bullet point).
  • UPS Net Income: In FY 2021, UPS experienced a yearly increase in their net income of $11.55B (or 859.79%) resulting in a total net income of $12.89B.
  • UPS EPS: As a result of UPS's increase in net income of $11.55B, UPS's EPS also increased (by $13.22) from $1.65 in FY 2020 to $14.87 in FY 2021

Overall, UPS had a fantastic financial performance in 2021, which is mostly thanks to the impacts that COVID-19 had on consumer purchasing and preferences. As a result of COVID many customers and businesses switched to e-commerce. A necessary component of such a shift is to have a delivery system in place to get your product to the paying customer, which requires you to ship them a package. This switch has been music to the ears of shipping giants like UPS, Fedex, DHL, and many more. However, 2021 might have been a "outlier" of a year, as it blew their (pre-covid to a certain extent) 2020 results out of the water. However, now that e-commerce has become the new normal, UPS's earnings should start to slow down and potentially top-off somewhere. With that being said, let's look at how their Q1 2022 results compare to their Q4 2021 results to get a better idea of current (new normal) performances.

UPS Earnings (Quarterly):

  • UPS Revenues: In Q1 2022, UPS experienced a quarterly decrease in revenues of $-3.39B (or -12.22%) resulting in a total revenue figure of $24.38B.
  • UPS Cost of Revenues: In Q1 2022, UPS experienced a quarterly decrease in their cost of revenues of $-2.14B (-9.99%), resulting in a total revenue figure of $19.32B. Since the decrease (of -9.99%), in UPS's cost of revenue was greater (by 2.23%) than the decrease (of -12.22%) in UPS's revenues, we should expect that UPS experienced an decrease in their Q1 gross profits.
  • UPS Gross Profit: In Q1 2022, UPS experienced a quarterly decrease in their gross profit of $-1.25B (or -19.79%) resulting in a total gross profit of $5.06B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4.
  • UPS EBITDA: In Q1 2022, UPS experienced a quarterly decrease in their EBITDA of $-559M (or -11.43%) resulting in a total EBITDA of $4.33B. This decrease (of -11.43%) stems from the fact that UPS experienced a decrease in their gross profits of -19.79% (as we saw in the previous bullet point).
  • UPS Net Income: In Q1 2022, UPS experienced a quarterly decrease in their net income of $-431M (or -13.93%) resulting in a total net income of $2.66B.
  • UPS EPS: As a result of UPS's decrease in net income of $-431M, UPS's EPS also decreased (by $-0.48) from $3.53 in Q4 2021 to $3.05 in Q1 2022

Overall, it seems as though UPS had a poor financial performance as many of their financial metrics shrunk, most notably their EPS (by $-0.48), as well as their net income (by $-431M), and other metrics (as you can tell from the above bullet points). On the surface it appears as though UPS's earnings might have already peaked, however, Q4 2021 is the holiday season, which is very beneficial and profitable for shipping companies like UPS. As a result, a better way to gauge their earnings is based off of their performance relative to analyst expectations (as they likely expected their revenues to decline after the holiday season.

However, UPS stock beat their EPS estimate by $0.17 (or 5.9%), as they reported an EPS of $3.05 for the quarter (compared to their estimated EPS of $2.88). This shows us a vastly different story than just their earnings figures (as a result of the seasonality of UPS's business.

UPS Recent Buybacks and Potential Future Share Dilution

As part of their Q1 2022 earnings release, UPS stated that they currently have 874M Shares Outstanding (weighted average), which is down -1M shares (from 875M shares outstanding in Q4 2021). Furthermore, UPS stock has up to 4M of shares that they can issue (thereby diluting UPS's stock). Overall, it is great that UPS has been buying back shares, as it increases the value of the shares of existing shareholders, and the fact that they have been buying back shares is an indicator that it may continue to happen into the future. However, we also need to keep in mind the fact that they can issue up to 4M shares of the UPS stock. If this were to happen it would decrease the value of existing shares by less than 1%, which is not a huge deal, but may mean that their next couple of quarters may not experience a "net buyback".

Global Courier Industry Outlook is Bullish

In a publication from globenewswire (based off of the research from "Researchandmarkets.com") they expect the global couriers and messengers industry to grow to a $1.25T industry by 2026, which would represent a 14.6% CAGR from their 2022 industry valuation of $725B. This is a very high expected growth rate, and is very good news for courier stocks (like UPS).

60% of Analysts' Ratings are Bullish

Here is the current spread of UPS stock ratings. In total there are 30 UPS stock ratings, which fall in the following categories.

  • 18 Buys
  • 9 Holds
  • 3 Sells

Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if UPS stock is a buy or sell. Overall, the majority (60%) of analysts have given the UPS stock a "Buy" rating, and 27 of the 30 analysts have given either a "Buy" or "Hold" rating, which implies that 90% of analysts are either bullish, or have a neutral stance on the UPS stock (which is good news)

UPS Stock Forecast 2022

Using a Comparable Analysis to Determine a UPS Price Forecast

  1. Price to Book (P/B): UPS's current P/B ratio is 10.05, compared to the average P/B ratio of UPS's peers being 5.47. This implies that UPS is undervalued and their share price should change by a factor of -45.57% to be at fair value (based on UPS's P/B compared to the P/B of their peers).
  2. Price to Equity (P/E): UPS stock P/E ratio is currently 14.48, compared to the average P/E ratio of UPS's peers being 17.67. This implies that UPS is overvalued and their share price should change by a factor of 22.03% to be at fair value (based on UPS's P/E compared to the P/E of their peers).

Overall, UPS stock is overvalued and needs to experience a change in stock price of (an average of) -12.77% to be considered “at fair value”. This is a very quick comparable, and may have flaws. This may be the case when comparing UPS's P/B to their competitors as there is a large difference in their ratios. However, looking outside of the P/E and P/B ratios, UPS seems to have better or similar ratios to that of their competitors.

Is UPS a good stock to buy right now?

Overall, there are both positive and negative aspects of the UPS stock.

Firstly, on the positive side: UPS earnings have been great recently with their monumental 2021 performance, as well as their recent EPS beat on their Q1 2022 earnings; UPS bought back more shares than they issued over the past quarter; analysts are generally bullish on the UPS stock; and their industry outlook implying a CAGR of 14.6%.

Alternatively, on the negative side: UPS could issue up to 4M shares which would dilute their stock by less than 1% (not a huge deal); also my quick UPS comparable analysis implies that they are overvalued, however, it may be skewed a bit to the negative side (as discussed previously).

Based off of weighing both the positive and negative aspects of the UPS stock, I think that they are undervalued and have room to grow. I think that 10-20% share price growth is attainable, and what I would be willing to exit a position in UPS at.

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UPS

United Parcel Service, Inc.

207.55

-0.50
-0.24%

Return

13.10%
Change % Since Posting
24.04
Change Since Posting
183.51
Price When Posted

Metrics

211.04
Target Price
8/ 10
Confidence
2-6 Months
Timeframe
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