UPS: UPS Stock: Is It a Buy Ahead of the Holiday Rush?

Logistics company United Parcel Service, Inc. (UPS - Get Rating) is planning to hire 100,000+ seasonal employees. UPS was expected to hire at least 60,000 seasonal employees in its fifth Brown Friday event, held on November 4-5, to reach its previously-set goal. This reflects that the company expects an uptick in business activities during the holiday season.

The company expects about 4-5% revenue growth and an adjusted operating margin of about 12.4% for its U.S. domestic segment. For fiscal 2022, UPS expects revenue of around $102 billion and an adjusted operating margin of about 13.7%.

For the same year, the company expects a dividend payout of around $5.20 billion, subject to board approval, and share repurchases of at least $3 billion. This is expected to be backed by a free cash flow of over $9 billion.

The stock is down 17.1% year-to-date. However, it has gained 10% over the past month and 5.4% over the past five days to close its last trading session at $177.79.

Here are the factors that could influence UPS’ performance in the upcoming months:

Solid Financials

For the fiscal third quarter ended September 30, UPS’ revenue increased 4.2% year-over-year to $24.16 billion. Non-GAAP adjusted profit rose 6% from the prior-year quarter to $3.15 billion. Non-GAAP net income and non-GAAP EPS improved 9.6% and 10.3% year-over-year to $2.61 billion and $2.99, respectively.

Strong Profitability

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UPS’ trailing-12-month EBIT margin, net income margin, and levered FCF margin of 13.66%, 11.07%, and 8.24% are 40.4%, 62.8%, and 141.1% higher than the industry averages of 9.73%, 6.80%, and 3.42%, respectively.

Its trailing-12-month ROCE, ROTC, and ROTA of 77.13%, 21.98%, and 16.09% are 439.1%, 222.1%, and 202.4% higher than their respective industry averages of 14.31%, 6.83%, and 5.32%.

Attractive Dividend

On November 2, UPS declared a regular quarterly dividend of $1.52 per share on all outstanding Class A and Class B shares, payable to shareholders on December 1. Its annual dividend of $6.08 yields 3.42% on the current share price.

Its dividend payouts have increased at a 16.6% CAGR over the past three years and a 12.9% CAGR over the past five years. The company has grown its dividend for 13 consecutive years.

POWR Ratings Reflect Promising Prospects

UPS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating 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 distinct categories. UPS has a Quality grade of A, in sync with its solid profitability scenario.

The stock has a B grade for Sentiment, consistent with favorable analyst estimates. Analysts expect its revenue and EPS for the current year to increase 4.3% and 6.6% year-over-year to $101.46 billion and $12.93, respectively.

In the 17-stock Air Freight & Shipping Services industry, it is ranked #6. The industry is rated A.

Click here to see the additional POWR Ratings for UPS (Growth, Value, Momentum, and Stability).

View all the top stocks in the Air Freight & Shipping Services industry here.

Bottom Line

The holiday rush should boost UPS’ revenues. Moreover, UPS’ better-than-industry profitability positions it well for attracting investor attention. On top of it, the company expects a solid dividend payout this year, underscoring its resilience. Therefore, UPS might be a solid addition to your portfolio now.

How Does United Parcel Service, Inc. (UPS) Stack up Against Its Peers?

While UPS has an overall POWR Rating of B, one might want to consider looking at its industry peers, Universal Logistics Holdings, Inc. (ULH - Get Rating), which has an overall A (Strong Buy) rating.

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UPS shares rose $3.21 (+1.81%) in premarket trading Tuesday. Year-to-date, UPS has declined -12.76%, versus a -14.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...