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Here's Why Investors Should Hold on to UPS Stock for Now

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United Parcel Service, Inc. UPS has been benefiting immensely from the new tax law. This is quite evident from the company’s bottom-line growth owing to significant reduction in corporate tax rate. In first-quarter 2018, the bottom line soared 17.4% for the same reason. Results were also aided by strong performances by the International, and the Supply Chain and Freight segments. In fact, the effective tax rate in the quarter was just a little over 19% compared with 31.8% in the prior-year quarter. Effective tax rate is projected between 23% and 24% for the remaining quarters of 2018.

The reduced corporate tax rate also boosts cash flow. In the first quarter, free cash flow totaled approximately $2.6 billion. Notably, with increased cash flow companies have more cash available to fund share repurchases among other things. In February, UPS raised its quarterly cash dividend by 10%. Furthermore, it paid approximately $840 million as dividend to shareholders in the first quarter, reflecting an increase of 10% year over year. Simultaneously, the company bought back 2.2 million shares for more than $250 million.

For 2018, free cash flow is projected between $4.5 billion and $5 billion. Given this bullish view we expect an uptrend in these shareholder-friendly activities.

UPS’ efforts to expand globally also raise optimism in the stock. In line with this objective, the company acquired Sandler & Travis Trade Advisory Services (STTAS) in December 2017. This buyout enables UPS to provide customers with enhanced solutions to maximize their trade investments. Furthermore, UPS' decision, taken in February 2018, to broaden the reach of its UPS WorldWide Express service is customer-friendly. Following the expansion, the service can be availed in 124 countries and territories across the globe. The measure aims to facilitate the delivery of urgent shipments in markets offering high-growth potential.
Furthermore, the rapid growth of e-commerce is a boon for UPS. Toward this end, last September, the company joined forces with SF Holding keeping in view that the Chinese e-commerce market is highly lucrative, offering significant commercial potential.

UPS has a commendable VGM Score of A as well. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.

In light of these positives, we believe investors should hold onto UPS for now.

Zacks Rank & Key Picks

UPS carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader Transportation sector are GATX Corporation (GATX - Free Report) , Expeditors International of Washington, Inc. EXPD and SkyWest, Inc. SKYW. While Expeditors sports a Zacks Rank #1 (Strong Buy), GATX and SkyWest carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of GATX, Expeditors and SkyWest have rallied more than 20%, 37% and 67%, respectively, in a year.
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