Why Did UPS’ Stock Grow Around 20% In 2019?

by Trefis Team
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United Parcel Service’s (NYSE:UPS) stock price grew 20% from around $96 levels by the end of 2018 to $118 in 2019, primarily driven by expansion of its P/E multiple, along with revenue growth, partly offset by a modest decline in margins, and a lower share count. UPS’ stock price growth of 20% compares with around a 13% decline for FedEx’s stock over the same period. This outperformance can primarily be attributed to the company’s better revenue growth and margins.

In this note we focus on the factors that drove growth for UPS’ stock over the last year. We can break down the movement in the stock price into three factors: 1. growth in revenue, 2. change in net income margin and share count, and 3. expansion of P/E multiple. You can look at our interactive dashboard analysis ~ What Factors Drove 20% Growth In United Parcel Service’s (UPS) Stock In 2019? ~ for more details.

#1. Revenues Will Likely Grow In Mid-Single-Digits

  • Revenues are expected to grow 4.3% from $71.9 billion in 2018 to an estimated $75.0 billion in 2019, led by continued growth in the US domestic package segment.
  • Look at our interactive dashboard analysis on UPS’ revenues for more details.

#1.1 UPS’ Revenue Growth Is Expected To Be Higher Than That of FedEx

#2. Adjusted Net Income Is Expected To Grow At A Slower Pace When Compared To Revenues

  • UPS’ adjusted net income will likely grow from $6.3 billion in 2018 to $6.5 billion in 2019.
  • This can be attributed to modest margin contraction and mid-single-digit growth in revenues, as discussed above.
  • Total Adjusted Expenses will likely grow from $65.6 billion in 2018 to $68.4 billion in 2019, reflecting a growth rate of 4.4%, which is slightly higher than that for revenues. We discuss the factors that impacted the expenses in the section below.

#2.1 Total Adjusted Expenses Will Likely Grow From $65.6 Billion In 2018 To $68.4 Billion In 2019

  • Notable change can be seen primarily in the purchased transportation, income taxes, and Non-GAAP adjustments.
  • Look at our interactive dashboard analysis on UPS’ expenses for more details.

#2.2 Adjusted EPS Could See Slight Growth, Led By Higher Net Income

  • UPS’ adjusted EPS could grow from $7.24 in 2018 to $7.51 in 2019, driven by higher adjusted net income.
  • No. of shares will likely remain around the 870 million mark.

#3. Price To Earnings Multiple for UPS Expanded Over The Last Year, And It Is Currently Higher Than That of FedEx

  • UPS’ P/E multiple expanded from 12.9x in 2018 to 14.5x in 2019. This can partly be attributed to the trends in domestic shipping, amid an increase in e-commerce.
  • This compares with FedEx, which saw its P/E multiple contract from 16.5x to 12.4x over the same period. This can partly be attributed to the end of contract for express shipping with Amazon.
  • Note these multiples are arrived at by using the average stock price for the month of December for the respective year, and adjusted earnings reported (or expected) for the following year (fiscal).

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