Following a less-than-stellar performance in the third quarter, package delivery company United Parcel Service, Inc. (UPS) is scheduled to disclose its fiscal fourth-quarter results on January 30, 2024. This article sheds light on the fundamentals of UPS to determine the stock’s worthiness as an investment candidate.

In the third quarter, UPS witnessed a sharp decline in both its topline and profits. While the company’s adjusted EPS of $1.57 managed to surpass the Street estimates of $ $1.52, its revenue, on the other hand, stood at $21.06 billion, falling short of the analyst estimate of $21.46 billion.

Furthermore, the company adjusted its full-year revenue forecast downward. UPS expects consolidated revenue for the year to fall within the range of $91.30 billion to $92.30 billion, a revision from its previous projection of $93 billion, citing global economic uncertainty.

Analysts expect the company’s fourth-quarter revenue to decline 6% from the year-ago quarter to $25.4 billion. The company is expected to witness a massive 32% decline in EPS for the quarter.

Nevertheless, despite the adverse impact of macroeconomic conditions on the company’s demand, on November 1, 2023, UPS paid its shareholders a quarterly dividend of $1.62 per share on all outstanding Class A and Class B shares. The company’s annual dividend of $6.48 translates to a 4.07% yield on the prevailing price, while its four-year average dividend yield is 2.98%.

Its dividend payouts have grown at CAGRs of 17.1% and 12.1% over the past three and five years, respectively. Moreover, UPS has a record of 14 years of consecutive dividend growth.

In addition, the company has pursued strategic acquisitions to bolster its operational efficiency. Notably, on November 6, 2023, UPS finalized the acquisition of MNX Global Logistics, a global provider of time-critical logistics. This acquisition enables UPS to enhance its capabilities in time-sensitive logistics, especially for healthcare clients worldwide.

Aligned with UPS' strategy to invest in cutting-edge technologies and capabilities, this move further reinforces the company's commitment to delivering reliable and efficient logistics solutions to its clientele.

In terms of price performance, UPS’ shares have plummeted 13.6% over the past six months but surged 15.3% over the past three months to close the last trading session at $159.30.

Here are the fundamental aspects of UPS that could influence its performance in the near term:

Weak Financials

For the fiscal third quarter, which ended on September 30, 2023, UPS’ revenue decreased 12.8% year-over-year to $21.06 billion. Its operating profit plunged 56.9% from the year-ago value to $1.34 billion.

Furthermore, the company’s net income declined 56.4% from the prior-year quarter to $1.13 billion. Meanwhile, its adjusted EPS came in at $1.57, down 47.5% from the year-ago value.

Mixed Profitability

UPS’ trailing-12-month levered FCF margin of 4.36% is 28.1% lower than the 6.07% industry average. Likewise, its trailing-12-month gross profit margin of 23.29% is 23.1% lower than the industry average of 30.28%.

On the other hand, the stock’s trailing-12-month cash per share of $5.06 is 139.1% higher than the industry average of $2.12. Additionally, its trailing-12-month asset turnover ratio of 1.33x is 65.2% higher than the industry average of 0.81x.

Mixed Valuation

In terms of forward P/E multiple, UPS’ 18.93x is 13% lower than the industry average of 21.77x. The stock’s forward EV/Sales multiple of 1.68 is 6% lower than the industry average of 1.79.

However, its forward non-GAAP PEG of 7.15x is 305.4% higher than the 1.76x industry average. Furthermore, its forward Price/Book ratio of 6.97x is 160.4% higher than the 2.68x industry average.

POWR Ratings Exhibit Uncertainty

UPS’ fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UPS has a D grade for Growth, justified by its weak financial performance in the third quarter. Moreover, UPS’ C grade for Value is consistent with its mixed valuation metrics. Likewise, the stock’s C grade for Stability is in sync with its 60-month beta of 1.06.

In the Air Freight & Shipping Services industry, UPS is ranked #6 out of the 15 stocks.   

Beyond what we’ve stated above, we have also rated the stock for Momentum, Sentiment, and Quality. Get all ratings of UPS here.

Bottom Line

While UPS’ strategic acquisitions and high dividend yield may attract investors, the company's deteriorating financial performance in the third quarter, mixed fundamentals, and expected decline in fourth-quarter revenue and earnings raise concerns over its future prospects. Therefore, as the company gears up to announce its fourth-quarter results tomorrow, it might be best to consider waiting for a more ideal entry point for investing in the stock.

How Does United Parcel Service, Inc. (UPS) Stack Up Against Its Peers?   

While UPS has an overall grade of C, equating to a Neutral rating, you may also check out these other stocks within the Air Freight & Shipping Services industry: FedEx Corporation (FDX), Radiant Logistics, Inc. (RLGT), and AerCap Holdings N.V. (AER) carrying B (Buy) ratings. To explore more Air Freight & Shipping Services stocks, click here.   

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

UPS shares fell $0.29 (-0.18%) in premarket trading Monday. Year-to-date, UPS has gained 1.32%, versus a 2.55% rise in the benchmark S&P 500 index during the same period.

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.

More...