Can UPS Beat Full Year 2019 Consensus Earnings?

by Trefis Team
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United Parcel Service (NYSE: UPS) is slated to release its Q4 and full-year 2019 results on January 30, 2020, and it will narrowly beat the consensus earnings, according to our estimates. For 2019, Trefis estimates that the company will report:

  • Revenues of $74.3 billion primarily due to expected revenue growth in the US Domestic Package business. This growth is slightly higher than the consensus estimate of $74.2 billion.
  • EPS of $7.53 (vs. consensus estimate of $7.52) due to a combination of higher revenues and slightly lower growth in expenses driving a modest growth in net income margin.

We believe that better-than-expected revenues and earnings for 2019 will very likely result in UPS’ stock moving up once earnings are announced. In fact, our forecast indicates that UPS’ valuation is $127 a share, which is roughly 10% above its current price of $115. Look at our interactive dashboard analysis on UPS’ Pre-Earnings for more details.

(1) Revenues expected to be in line with the consensus estimate

  • Trefis estimates UPS’ 2019 revenues to be $74.3 billion, slightly above the consensus estimate of $74.2 billion.

(1) US Domestic Package               $45.5 Bil (61%)
(2) International Package              $14.1 Bil (19%)
(3) Supply Chain & Others            $11.8 Bil (16%)
(4) UPS Freight                               $2.9 Bil (4%)
————————————————————–
TOTAL                                             $74.3 Bil
Consensus                                       $74.2  Bil
Surprise                                           $0.1 Bil

  • Revenues expected to increase 3.3% from $71.9 billion in 2018 to $74.3 billion in 2019.
  • US Domestic Package, which provides day definite, date-scheduled cost effective delivery for commercial and residential shipments in the U.S. and Puerto Rico, has contributed around half of the company’s revenue growth between 2015 and 2018. It is expected to add close to $2 billion in total revenue in 2019, accounting for 78% of the total expected revenue growth in 2019.
  • See UPS Revenues – How Does UPS Make Money? We provide an interactive, in-depth view of the company’s revenues along with our forecasts.
  • Key for 2020: UPS’ revenues have grown at an average annual rate of 8.6% between 2016-2018. However, we expect the growth rate to reduce to 4.3% over 2019-2020.

(2) EPS likely to narrowly beat consensus estimate

  • UPS’ 2019 earnings per share (EPS) expected to be $7.53 per Trefis analysis, slightly higher than the consensus estimate of $7.52 per share.

Total Revenues        $74.3 Bil
– Total Expenses      $67.7  Bil
————————————————-
Net Income               $6.6 Bil
÷ No. of Shares        870 Mil
————————————————-
EPS                             $7.53
Consensus                 $7.52
Surprise                     $0.01

Note – Numbers may not add up due to rounding

  • As we forecast UPS’ Revenues to grow at a similar higher rate as Expenses in 2019 (3.3%), resulting in no change to UPS’ Net Income Margin figure of 8.8%, as shown in the dashboard.
  • See UPS Expenses – How Does UPS Spend Its Money? We provide an interactive, in-depth view of the company’s expenses, and earnings margins.
  • Key for 2020: For 2020, we believe that a steady revenue growth coupled with a slightly lower growth in expenses will result in the net income margin figure improving to 9.0%.

(3) Stock price estimate ~ 10% higher than market price

  • Trefis’ forecast for UPS’ 2019 earnings as well as P/E multiple are slightly higher than market expectations, working out to a fair value of $127 for UPS’ stock as opposed to the current market price around $115.
  • A trailing P/E multiple of 16.9x looks appropriate for UPS’ stock, as opposed to the current implied P/E multiple of 15.3x.
  • UPS’ P/E multiple has been higher than that of FedEx over the recent years.
  • We use our full cash flow model for UPS to arrive at a P/E multiple of 16.9x for a price estimate of $127.
  • Note: P/E Multiples are based on average Share Price for the month of December, and reported (or expected) Adjusted Earnings for the full year (fiscal).

See all Trefis Price Estimates and Download Trefis Data here

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