United Parcel Service (UPS), typically shortened to UPS, is in the financial headlines but not for anything positive. However, there’s a great opportunity afoot for level-headed investors. I am bullish on UPS stock because the company’s recently released results aren’t as bad as the market seems to think they are.
United Parcel Service is a logistics/package-delivery company. In the U.S., UPS delivery trucks are a common sight on the roadways and in neighborhoods. Some commentators might view UPS as an indicator of the health of the American economy, since it’s a good sign if people have money to order products and have them delivered.
On the other hand, it may be a bad sign if UPS’s financials aren’t in stellar condition. The market seems to think that UPS is in big trouble, but I encourage investors to conduct their own due diligence and form their own conclusions. At the end of the day, you might decide that UPS isn’t in terrible shape and the stock is worthy of a dip-buy.
Why Did UPS Stock Plunge?
UPS stock declined in 2022, 2023, and the first half of 2024. Today, the sell-off continued, with the UPS share price falling more than 13%. So, what’s going on with this popular package-delivery company?
Most likely, the main culprit is inflation, and not just consumer-price inflation. It also costs more to pay workers, including delivery drivers, than it did prior to the COVID-19 pandemic.
There’s also the issue of lower package delivery volumes, which is likely related to consumer price inflation. After all, consumers won’t request as many package shipments if they don’t have as much purchasing power as they used to have.
However, the beatdown of UPS stock may be overdone at this point. The stock has been nearly cut in half since early 2022, and today’s sell-off appears to be excessive. Is the company really worth 13% less than it was yesterday?
Clearly, UPS’s second-quarter 2024 financial report prompted the latest share-price decline. The company generated $21.8 billion in revenue, representing a slight decline from $22.1 billion in the year-earlier quarter. Furthermore, this result missed the consensus estimate of $22.2 billion in quarterly revenue, but that’s not a very wide miss.
Turning to the bottom-line results, UPS reported earnings of $1.79 per share, which indicates a noticeable fall-off compared to the year-earlier quarter’s earnings of $2.54 per share. Moreover, Wall Street’s analysts wanted to see Q2-2024 earnings of $1.99 per share, so that’s another miss for UPS.
The Upside of the Beatdown
Before you go into panic-selling mode due to the revenue and earnings misses, think about the upside of the UPS stock drawdown. First of all, if there are no dividend cuts, then UPS’s yield will be quite enticing for income investors.
With the UPS share price around $126 and the company distributing a $1.63 per-share dividend payment every quarter, then UPS’s forward annual dividend yield is 5.17%. That’s certainly higher than the Industrial Goods sector average dividend yield of 1.639%.
There’s more upside beyond the dividends, as UPS stock looks like a hard-to-beat value pick. Assuming a $126 share price, and given that UPS earned $7.26 per share during the past four quarters, then UPS’s trailing 12-month P/E ratio would be $126 / $7.26 or 17.35x. This is discernibly lower than the sector median P/E ratio of 24.61x, so one may conclude that UPS stock is reasonably priced.
Finally, investors should read UPS’s commentary carefully and not just glance at the headline numbers. For one thing, UPS Carol Tomé observed that the company “returned to volume growth in the U.S., the first time in nine quarters.” That’s a sign of a possible turnaround for UPS, and might even bode well for the U.S. economy generally.
In addition, there were challenging circumstances for UPS earlier this year, which might not be repeated. Specifically, UPS’s second-quarter 2024 “GAAP results include an after-tax charge of $120 million, or $0.14 per diluted share.” This hefty charge includes a “one-time payment of $94 million to settle an international regulatory matter, and transformation and other charges of $26 million.” Hence, unless a similarly difficult situation arises, UPS may be able to deliver excellent results for the current quarter.
Is UPS Stock a Buy, According to Analysts?
On TipRanks, UPS comes in as a Moderate Buy based on nine Buys, eight Holds, and one Sell rating assigned by analysts in the past three months. The average United Parcel Service stock price target is $159.17, implying 26.4% upside potential.
Conclusion: Should You Consider UPS Stock?
United Parcel Service has been the market’s outcast for over two years. However, some sellers seem to overlook UPS’s return to package-delivery volume growth, enticing dividend payouts, and good value in terms of stock price versus corporate earnings.
You don’t have to overlook these factors, though. Indeed, I invite you to research United Parcel Service and decide whether the market is underestimating the company’s turnaround potential. With all of that in mind, I would consider purchasing a moderately-sized share position in UPS stock.
