UPS stock has seen a significant decline from its peak level in February 2022, currently trading at $156 per share, 32% below the peak level of $232. This underperformance can be attributed to a broader decline in parcel delivery volumes, amid a weak consumer spending environment due to higher inflation. Over a slightly longer period, UPS stock has seen minimal change, moving from $170 in early January 2021 to $155 currently, compared to a 40% increase for the S&P 500 over the same period. Returns for UPS stock were 27% in 2021, -19% in 2022, and -10% in 2023, indicating underperformance compared to the S&P 500.
Consistently beating the S&P 500 has been a challenge for individual stocks in recent years, including heavyweight companies in the Industrials sector and megacap stars. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk. From a valuation perspective, UPS stock appears fully priced, with an estimated valuation of $156 per share based on a forward earnings estimate of $8.36 in 2024.
An analysis of UPS’ performance post-inflation shock during 2022, compared to the 2008 recession, shows the company’s resilience in challenging market conditions. The 2022 inflation shock timeline highlights the impact of high inflation rates and aggressive interest rate hikes by the Federal Reserve on market sentiment and the S&P 500. In contrast, the performance of UPS stock during the 2007/2008 crisis saw a decline followed by a recovery, reflecting the company’s ability to navigate market downturns.
UPS’ fundamentals in recent years have seen a decrease in revenue and operating margin due to lower package volumes and the impact of a labor deal with the Teamsters Union. Despite these challenges, UPS maintained a solid cash cushion of around $8.2 billion in 2023, with $10.2 billion in cash flows from operations. This indicates the company is well-positioned to meet its near-term obligations during the ongoing inflation shock.
Looking ahead, UPS stock could potentially see gains once fears of a recession are alleviated by the Fed’s efforts to control inflation. However, in the current environment of weak consumer spending and pressure on operating margins, investors may be better off waiting for a dip to enter UPS stock. While there is potential for UPS stock to see higher levels, it is important to compare the company’s performance to its peers to make informed investment decisions. Investors can access valuable peer comparisons for companies across industries to assess UPS’ performance relative to its competitors.
