UPS (NYSE: UPS) just lately reported its Q1 outcomes, with revenues lacking however earnings forward of our estimates. The corporate reported income of $21.7 billion and adjusted earnings of $1.43 per share, in comparison with our estimates of $22 billion and $1.38, respectively. On this word, we focus on UPS’ inventory efficiency, key takeaways from its current outcomes, and valuation. The corporate continues to face decrease quantity, whereas pricing additionally noticed a modest decline. Though UPS posted an upbeat Q1 earnings, we predict its inventory has little room for progress from its present ranges of round $150. On this word, we focus on UPS’ inventory efficiency, key takeaways from its current outcomes, and valuation.
Firstly, allow us to have a look at its inventory efficiency. UPS inventory has seen a decline of 10% from ranges of $170 in early January 2021 to round $150 now, vs. a rise of about 35% for the S&P 500 over this roughly three-year interval. Nevertheless, the lower in UPS inventory has been removed from constant. Returns for the inventory have been 27% in 2021, -19% in 2022, and -10% in 2023. Compared, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UPS underperformed the S&P in 2023.
In actual fact, constantly beating the S&P 500 — in good instances and unhealthy — has been tough over current years for particular person shares; for heavyweights within the Industrials sector together with GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In distinction, the Trefis Excessive High quality (HQ) Portfolio, with a group of 30 shares, has outperformed the S&P 500 annually over the identical interval. Why is that? As a bunch, HQ Portfolio shares supplied higher returns with much less danger versus the benchmark index; much less of a roller-coaster experience, as evident in HQ Portfolio efficiency metrics.
Given the present unsure macroeconomic setting with excessive oil costs and elevated rates of interest, might UPS face the same scenario because it did in 2023 and underperform the S&P over the subsequent 12 months — or will it see a restoration? From a valuation perspective, UPS inventory appears prefer it has little room for progress. We estimate UPS’s valuation to be $163 per share, reflecting an upside of simply round 10% from its present ranges of $150. Our forecast relies on a 20x P/E a number of for UPS and anticipated earnings of $8.25 on a per-share and adjusted foundation for the complete yr 2024. The 20x determine compares with the 19x common worth during the last three years.
UPS’s income of $21.7 billion in Q1 was down 5% y-o-y, and the corporate acknowledged that the tender demand setting weighed on the general income progress. The corporate’s working margins have additionally been weighed down within the current previous, primarily because of the affect of the labor cope with the Teamsters Union that was ratified in August final yr. The adjusted working margin slid 300 bps to 18% in Q1. Decrease revenues and margin contraction resulted in a 35% fall within the backside line to $1.43 on an adjusted foundation. UPS continues to count on its 2024 income to be within the vary of $92 billion to $94.5 billion, and it expects working margin to enhance to 10%-10.6%. We expect any vital progress in UPS inventory will come within the second half of the yr when the corporate delivers on margin enlargement.
| Returns | Apr 2024 MTD [1] |
2024 YTD [1] |
2017-24 Whole [2] |
| UPS Return | -1% | -6% | 29% |
| S&P 500 Return | -3% | 7% | 128% |
| Trefis Strengthened Worth Portfolio | -4% | 2% | 623% |
[1] Returns as of 4/27/2024
[2] Cumulative whole returns because the finish of 2016
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The views and opinions expressed herein are the views and opinions of the creator and don’t essentially replicate these of Nasdaq, Inc.
