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Here's Why Investors Should Give UPS Stock a Miss at Present
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United Parcel Service (UPS - Free Report) is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 15.4% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 9.5% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank and Style Score: UPS currently carries a Zacks Rank #4 (Sell). Moreover, the company’s current Momentum Style Score of C shows its short-term unattractiveness.
An Underperformer: The UPS stock has lost 1.8% year to date against its industry’s 12.5% growth.
Image Source: Zacks Investment Research
Other Headwinds:While releasing second-quarter 2023 results earlier in the month, management trimmed its current-year revenue outlook. It now expects 2023 revenues to be around $93 billion (prior view: $97 billion). The new forecast is also much lower than levels. Management cited costs associated with the labor deal, inked with 330,000 unionized workers, and declining package volumes induced by labor negotiations as reasons for lowering the outlook.
The five-year deal with International Brotherhood of Teamsters for better payments and working conditions is worth about $30 billion. It is likely to keep labor costs at high levels. As a result of higher pay, induced by the deal, there are risks of a wage-price spiral being created.
Since prices are increasing, workers will, naturally, demand additional compensation. This, in turn, may push prices even higher, raising concerns that inflation levels are likely to remain elevated. Apart from the mentioned adverse effects of labor negotiations, weakening demand due to economic slowdown has also led to a decline in volume of packages shipped.
United Airlines is seeing steady recovery in domestic and international air-travel demand. Owing to this, UAL expects revenues for the September quarter to grow 10-13% year over year. Our projection for third-quarter total revenues hints at an increase of 11.4% year over year.
For third-quarter 2023, United Airlines anticipates capacity to improve 16% from the year-ago reported figure. The Zacks Consensus Estimate for UAL’s current-year earnings has been revised 19.7% upward over the past 60 days.
The uptrend with respect to e-commerce even in the post-pandemic scenario is a huge positive for Air Transport Services. It is the primary driver behind the uptick in demand for midsize air freighters.
With shippers replacing their older, less fuel-efficient equipment, ATSG’s freighters have emerged as suitable replacements. Driven by the upbeat demand, ATSG has delivered a record six converted freighters under lease in a month to its customers worldwide. The Zacks Consensus Estimate for ATSG’s current-year earnings has been revised 8.6% upward over the past 60 days.
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Here's Why Investors Should Give UPS Stock a Miss at Present
United Parcel Service (UPS - Free Report) is currently mired in multiple headwinds, which we believe, have made it an unimpressive investment option.
Let’s delve deeper.
Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 15.4% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 9.5% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank and Style Score: UPS currently carries a Zacks Rank #4 (Sell). Moreover, the company’s current Momentum Style Score of C shows its short-term unattractiveness.
An Underperformer: The UPS stock has lost 1.8% year to date against its industry’s 12.5% growth.
Image Source: Zacks Investment Research
Other Headwinds: While releasing second-quarter 2023 results earlier in the month, management trimmed its current-year revenue outlook. It now expects 2023 revenues to be around $93 billion (prior view: $97 billion). The new forecast is also much lower than levels. Management cited costs associated with the labor deal, inked with 330,000 unionized workers, and declining package volumes induced by labor negotiations as reasons for lowering the outlook.
The five-year deal with International Brotherhood of Teamsters for better payments and working conditions is worth about $30 billion. It is likely to keep labor costs at high levels. As a result of higher pay, induced by the deal, there are risks of a wage-price spiral being created.
Since prices are increasing, workers will, naturally, demand additional compensation. This, in turn, may push prices even higher, raising concerns that inflation levels are likely to remain elevated. Apart from the mentioned adverse effects of labor negotiations, weakening demand due to economic slowdown has also led to a decline in volume of packages shipped.
Stocks to Consider
Investors interested in the Zacks Transportation sector may consider stocks like United Airlines (UAL - Free Report) and Air Transport Services (ATSG - Free Report) . UAL and ATSG currently sport a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
United Airlines is seeing steady recovery in domestic and international air-travel demand. Owing to this, UAL expects revenues for the September quarter to grow 10-13% year over year. Our projection for third-quarter total revenues hints at an increase of 11.4% year over year.
For third-quarter 2023, United Airlines anticipates capacity to improve 16% from the year-ago reported figure. The Zacks Consensus Estimate for UAL’s current-year earnings has been revised 19.7% upward over the past 60 days.
The uptrend with respect to e-commerce even in the post-pandemic scenario is a huge positive for Air Transport Services. It is the primary driver behind the uptick in demand for midsize air freighters.
With shippers replacing their older, less fuel-efficient equipment, ATSG’s freighters have emerged as suitable replacements. Driven by the upbeat demand, ATSG has delivered a record six converted freighters under lease in a month to its customers worldwide. The Zacks Consensus Estimate for ATSG’s current-year earnings has been revised 8.6% upward over the past 60 days.