UPS recently reported its Q2 results, with revenues and earnings falling short of street estimates. The company reported revenue of $21.8 billion and adjusted earnings of $1.79 per share, compared to consensus estimates of $22.2 billion and $1.99, respectively. UPS stock has declined by 15% from early January 2021 to around $125, compared to a 45% increase for the S&P 500 over the same period. Returns for UPS stock were 30% in 2021, -16% in 2022, and -6% in 2023, underperforming the S&P.
Consistently beating the S&P 500 has been challenging for individual stocks in recent years, including heavyweights like GE, CAT, and RTX, and even megacap stars like GOOG, TSLA, and MSFT. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. The HQ Portfolio provided better returns with less risk compared to the benchmark index. Given the uncertain macroeconomic environment with high oil prices and elevated interest rates, UPS’s stock might face turbulence in the next 12 months.
From a valuation perspective, UPS stock appears to have some room for growth, with an estimated valuation of $151 per share, reflecting a potential upside of over 15% from current levels. This forecast is based on a 19x P/E multiple for UPS and expected earnings of $7.96 per share on an adjusted basis for the full year 2024, in line with the stock’s average P/E ratio over the last three years. In Q2, UPS revenue declined 1% year-over-year, with a weak freight demand environment impacting sales. Supply Chain Solutions segment sales grew by 2.6%, while U.S. Domestic Package and International sales declined.
Despite a rebound in domestic volumes, with U.S. Domestic average daily package volume up by 0.7%, international volume decreased by 2.9% year-over-year. The average revenue per piece also experienced declines for both U.S. and international packages. The consolidated adjusted operating margin for UPS stood at 9.5%, while adjusted EPS plunged by 29.5% year-over-year to $1.79 in Q2 2024. UPS lowered its 2024 revenue outlook to $93 billion and adjusted operating profit margin outlook to 9.4%, from the previous guidance of $92 billion to $94.5 billion and 10.3% respectively.
Following a downbeat Q2 with a downward revision to its full-year outlook, UPS saw a 12% fall in its stock in the last five days. Despite this, from a valuation perspective, there seems to be some potential for growth in UPS stock after its recent decline. Additionally, the rebound in U.S. volumes is a positive takeaway from the company’s latest results. It is important to consider how UPS’s peers are performing on key metrics to gain a better understanding of the company’s position in the industry.
