United Parcel Service, Inc. (UPS) is a package delivery and logistics services provider that operates through U.S. Domestic Package, International Package, and Supply Chain & Freight segments. The stock gained 14.8% in April and has appreciated 37% over the past year, driven by pandemic-fueled demand for doorstep deliveries and vaccine shipments. In fact, UPS’ stock is trading just 0.5% below its $215.30 52-week high, which it hit on May 4.
For the first quarter of 2021, UPS has reported solid growth across all segments and a substantial increase in its consolidated average daily volume of deliveries.
Given that UPS is enhancing its logistics capabilities to meet increasing customer needs, we believe its stock is poised to maintain its rally. Here is what we think could shape UPS’ performance in the near term:
Industry Tailwinds
The logistics and delivery industry has played an important role in the movement, storage, and flow of goods amid the COVID-19 pandemic. By facilitating trade and commerce and helping e-commerce businesses deliver their products to customers, the industry has grown immensely in the last couple of years. Since the pandemic has shifted the purchase of most goods online, the demand for package delivery services has been boosted. In fact, large scale COVID-19 vaccination drives around the world have benefited logistics companies and delivery services significantly.
Given that UPS is a U.S. government partner in delivering COVID-19 vaccines, profits from the company’s shipment business have surged significantly. Its operating profit from its freight segment rose 104.5% in its last reported quarter.
Strong Growth Outlook
A $2.78 consensus EPS estimate for the current quarter, ending June 2021, indicates a 30.5% improvement year-over-year. Furthermore, its EPS is expected to rise 32.6% in the current year, and at 12.4% per annum rate over the next five years.
Analysts expect UPS’ revenues to rise 6.4% year-over-year to $22.59 billion in the next quarter, ending September 2021, and 10.3% to $93.36 billion in the current year.
Impressive Quarterly Performance
UPS’ consolidated revenue increased 27% year-over-year to $22.9 billion in the first quarter ended March 31. Its operating profit was $2.8 billion, up 158% compared to the first quarter of 2020. The company’s EPS rose 393% from the prior-year quarter to $5.47. Also, UPS’ international segment revenue increased to 36.2% year-over-year to $4.61 billion, while its domestic segment revenue surged 22.3%.
Reasonable Valuation
In terms of non-GAAP forward P/E, UPS is currently trading at 19.57x, which is 12.7% lower than the 22.42x industry average. The stock’s 17.22x forward EV/EBIT is 6.7% lower than the 18.47x industry average. And UPS’ 14.39 forward Price/Cash flow ratio is 13.4% lower than the 16.62 industry average.
POWR Ratings Reflect Promising Outlook
UPS has a B overall rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. UPS has an A Sentiment Grade, consistent with analysts’ expectations that its revenue and earnings will grow.
In terms of Quality Grade, UPS has a B. This is in sync with the company’s 9.9% ROE, which is significantly higher than the 8.6% industry average.
Click here to see the additional POWR Ratings for UPS (Value, Stability, Growth and Momentum).
The stock is ranked #6 of 15 stocks in the A-rated Air Freight & Shipping Services industry.
If you’re looking for other top-rated stocks in the same industry with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
The shipping giant UPS saw its revenue and profit soar to record levels amid an e-commerce boom and rapid roll-out of vaccines internationally. Since the shipment of vaccines is expected to continue for some time , the company’s freight and air transport services are expected to continue witnessing steady demand. As such, we believe the stock is well-positioned to maintain its rally.
UPS shares were trading at $213.84 per share on Wednesday morning, down $0.47 (-0.22%). Year-to-date, UPS has gained 27.79%, versus a 11.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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