Is UPS a Good Investment for You?

Founded in 1907, United Parcel Service (UPS) is an American package delivery company and a leading provider of global supply chain management solutions. On November 10, 1999, UPS went public on the NYSE. The IPO stock price was $50.

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Now the company’s stock is traded around $150.

Is UPS a good investment for you? Let’s take a look at both the bullish and bearish cases for the stock.

The bullish case for UPS

Firstly, UPS’s investments in automated and robotic facilities, smart package facilities, and digital twin modeling of operations will enhance productivity and enable cost reduction through facility consolidation, resulting in a decrease in cost per piece (CPP).

Secondly, the company signed a $1.5 billion contract with the United States Postal Service (USPS) for air cargo. This new contract will go on at least for 5 years and have UPS as the primary contractor for the USPS’ first-class mail, priority mail and priority express mail.

Thirdly, the industry’s excess capacity is expected to return to normal levels as consumers shift their spending back to products after focusing more on services, such as travel and leisure, in the wake of easing pandemic-era restrictions.

The bearish case for UPS

Management’s plan relies on a significant increase in RPP, but by management’s admission, the market is competitive and characterized by excess capacity versus demand currently.

The company released its Q1 2024 earnings in April and the numbers are not looking good. Although quarterly profit beat analyst expectations, they were on the decline for five consecutive quarters. Revenue declined 5.3% and operating profit was down 31.5% when adjusting for inflation, compared to the same period last year.

Is UPS a good investment for you?

It’s prudent to first look at UPS’ full-year 2024 financial targets:

Consolidated revenue to range from approximately $92.0 billion to $94.5 billion
Consolidated adjusted operating margin to range from approximately 10.0% to 10.6%
Capital expenditures of approximately $4.5 billion

Then it’s your time to do your own research. After the research, if you believe UPS has growth potential, you may consider buying in; if you think the full-year 2024 guidance is a concern and it will miss the targets, consider other stocks instead.

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