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Coronavirus Concerns May Deal a Blow to UPS' Q1 Results

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Per Reuters, United Parcel Service, Inc. UPS has given a heads up on the likely impact of the coronavirus outbreak on first-quarter 2020 results. The novel coronavirus outbreak having begun in Wuhan, China at the end of last year has now spread to more than 70 countries worldwide with over 92,000 confirmed cases of the infection and above 3,000 deaths across the globe.

At the Raymond James investors’ conference held on Mar 3, UPS’ chief financial officer Brian Newman stated that "the business obviously slowed" due to the fast-evolving coronavirus and that it might hamper shipment of goods, which in turn, is expected to hurt first-quarter performance. However, the company’s planes are still operating in China.

UPS rival FedEx Corporation FDX is also operating flights to and from the affected countries but feels that work and travel restrictions might affect the transport of shipments.

UPS’ bottom line is already stressed by heavy capital expenses as it makes consistent efforts to upgrade facilities to cater to rising demand following rapid e-commerce growth. In 2019, the company made capital investments worth $6.5 billion. The capex is expected to increase to $6.7 billion during 2020 due to investments in additional automated sorting hubs for expanding its retail client base. The escalating capital expenses are anticipated to dent the company’s 2020 earnings per share by roughly 33 cents. Additionally, given how fast the coronavirus is spreading globally with no sign of subsiding anytime soon, there are chances that UPS’ 2020 results might be affected by the calamity as well.

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) and Controladora Vuela Compania de Aviacion, S.A.B. de C.V. VLRS, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

GATX flaunts an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average being 21%. Meanwhile, shares of Controladora Vuela have rallied more than 14% in a year’s time.

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