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UPS Stock Should Continue to Grace Your Portfolio: Here's Why
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United Parcel Service (UPS - Free Report) gains momentum from e-commerce growth and shareholder rewards. However, elevated labor costs and weakened demand impact stock performance.
Factors Favoring UPS
UPS demonstrates financial strength with a robust $5.3 billion free cash flow in 2023. Shareholder-friendly actions, including a 15th consecutive annual dividend increase and a $5 billion share repurchase authorization, bode well. In 2024, UPS’ board of directors raised its quarterly cash dividend to $1.63 per share. For the full-year 2024, UPS expects to make dividend payments of $5.4 billion.
The 2022 UPS-ESW agreement aligns with the thriving cross-border e-commerce trend, especially among millennials and Gen Z. This strategic move enhances UPS' e-commerce capabilities, positioning the company for potential revenue growth by meeting evolving consumer demands.
The approval of the five-year deal with the International Brotherhood of Teamsters in August 2023 is a positive development for UPS. The deal enhances pay and working conditions for the workers represented by the union.
Key Risks
The economic slowdown has resulted in weak demand, causing a 7.4% year-over-year decline in average daily volumes in UPS's consolidated shipments during the fourth quarter of 2023. Consequently, fourth-quarter 2023 revenues also dropped by 7.8% year over year. UPS anticipates 2024 revenues to fall within the range of $92-$94.5 billion.
Rising capital expenses pose a challenge for UPS, escalating from $4.77 billion in 2022 to $5.2 billion in 2023. However, with a 2024 capex guidance of $4.5 billion, though slightly lower, the substantial outlay during a period of weak demand may still impact current-year profit margins.
The above deal with the teamsters is likely to raise labor costs, with wages and benefits growing at a 3.3% compound annual rate for the next five years. Most of these costs linked to the contract expiring in August 2028 will occur in the first year.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days. GATX has an expected earnings growth rate of 3.7% for 2024. Shares of GATX have risen 19.5% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 11.1% over the past 90 days. Shares of SkyWest have surged 222.1% in the past year.
The company has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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UPS Stock Should Continue to Grace Your Portfolio: Here's Why
United Parcel Service (UPS - Free Report) gains momentum from e-commerce growth and shareholder rewards. However, elevated labor costs and weakened demand impact stock performance.
Factors Favoring UPS
UPS demonstrates financial strength with a robust $5.3 billion free cash flow in 2023. Shareholder-friendly actions, including a 15th consecutive annual dividend increase and a $5 billion share repurchase authorization, bode well. In 2024, UPS’ board of directors raised its quarterly cash dividend to $1.63 per share. For the full-year 2024, UPS expects to make dividend payments of $5.4 billion.
The 2022 UPS-ESW agreement aligns with the thriving cross-border e-commerce trend, especially among millennials and Gen Z. This strategic move enhances UPS' e-commerce capabilities, positioning the company for potential revenue growth by meeting evolving consumer demands.
The approval of the five-year deal with the International Brotherhood of Teamsters in August 2023 is a positive development for UPS. The deal enhances pay and working conditions for the workers represented by the union.
Key Risks
The economic slowdown has resulted in weak demand, causing a 7.4% year-over-year decline in average daily volumes in UPS's consolidated shipments during the fourth quarter of 2023. Consequently, fourth-quarter 2023 revenues also dropped by 7.8% year over year. UPS anticipates 2024 revenues to fall within the range of $92-$94.5 billion.
Rising capital expenses pose a challenge for UPS, escalating from $4.77 billion in 2022 to $5.2 billion in 2023. However, with a 2024 capex guidance of $4.5 billion, though slightly lower, the substantial outlay during a period of weak demand may still impact current-year profit margins.
The above deal with the teamsters is likely to raise labor costs, with wages and benefits growing at a 3.3% compound annual rate for the next five years. Most of these costs linked to the contract expiring in August 2028 will occur in the first year.
Zacks Rank
UPS currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include GATX Corporation (GATX - Free Report) and SkyWest Inc. (SKYW - Free Report) . Each stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days. GATX has an expected earnings growth rate of 3.7% for 2024. Shares of GATX have risen 19.5% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 11.1% over the past 90 days. Shares of SkyWest have surged 222.1% in the past year.
The company has an expected earnings growth rate of more than 100% for 2024. SKYW delivered a trailing four-quarter earnings surprise of 128.02%, on average.