[Updated: 6/10/2021] UPS Stock Decline
The stock price of United Parcel Service (NYSE:UPS) has seen a 5.1% drop over the last five trading days. The drop came after the company announced its outlook for 2023 with revenues to be in the range of $98 billion and $102 billion, and adjusted operating margin to be in the range of 10.5% and 12.0%. The decline in UPS stock following this development is actually surprising, given that the consensus estimate for revenue is at $100 billion, and operating income at $12.6 billion is also what the analysts were estimating. At mid-point of the newly provided range, revenues are expected to be $100 billion and adjusted operating income at $13.2 billion, largely in-line with the street estimates. UPS also stated that it will focus on deliveries that provide higher margins over volume.
UPS stock has seen a large rally, rising nearly 2x over the last one year, significantly outperforming the broader markets with the S&P500 up just 32%. This can be attributed to a massive growth in the company’s ground shipments, driven by a rise in demand for e-commerce during the pandemic. Given the large move, a profit booking at higher levels can’t be ruled out.
Given that UPS stock has fallen 5.1% in just five days, will it resume its downward trajectory over the coming weeks, or is a rise in the stock imminent? We believe that the stock will rebound in the near term. Using the recent trend (5.1% fall in a week) and ten years of historical stock data, the Trefis AI engine finds that UPS stock will likely move higher over the next one month (twenty-one trading days).
According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price using historical stock data, returns for UPS stock average around 1.5% in the next one-month (twenty-one trading days) period after experiencing a 5% fall in a week (five trading days), lower than the 3.1% expected return for the S&P500 over the next month (twenty-one trading days). Also, given that UPS’s outlook for 2023 wasn’t lower than what the street has expected, we believe that this is a good buying opportunity for the long term investors.
But how would these numbers change if you are interested in holding UPS stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test UPS stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!
Some Fun Scenarios, FAQs & Making Sense of United Parcel Service Stock Movements:
Question 1: Is the average return for United Parcel Service stock higher after a drop?
Answer: Consider two situations,
Case 1: United Parcel Service stock drops by -5% or more in a week
Case 2: United Parcel Service stock rises by 5% or more in a week
Is the average return for United Parcel Service stock higher over the subsequent month after Case 1 or Case 2?
UPS stock fares better after Case 2, with an average return of 1.5% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 1.8% for Case 2.
In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.
Try the Trefis machine learning engine above to see for yourself how United Parcel Service stock is likely to behave after any specific gain or loss over a period.
Question 2: Does patience pay?
Answer: If you buy and hold United Parcel Service stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.
Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!
For UPS stock, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500:
You can try the engine to see what this table looks like for United Parcel Service after a larger loss over the last week, month, or quarter.
Question 3: What about the average return after a rise if you wait for a while?
Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although UPS stock appears to be an exception to this general observation.
It’s pretty powerful to test the trend for yourself for United Parcel Service stock by changing the inputs in the charts above.
[Updated: 4/29/2021] UPS Stock Rise
The stock price of United Parcel Service (NYSE:UPS) has seen an 11% rise over the last five trading days, after the company announced better than expected Q1 results. UPS’ Q1 revenue of $22.9 billion was ahead of $20.8 billion revenue forecast per Trefis estimates and $20.5 billion consensus estimates. Similarly, the company’s adjusted EPS of $2.77 per share was much higher than our forecast of $1.85, and the $1.72 consensus estimate. This robust performance can be attributed to strong growth in residential deliveries, along with increased international outbound deliveries. The margins also improved on the back of improved demand and controlled expenses.
The investors were more than happy with UPS’ Q1 performance and the stock rose 10% in a single trading session, post the earnings announcement. Now that half of the U.S. population has received at least one dose of vaccine, the volume of business deliveries is expected to rise, boding well for UPS stock over the coming quarters.
Going by historical performance, there is a strong chance of a rise in UPS stock over the next month. Out of 14 instances in the last ten years that UPS stock saw a five-day rise of 11% or more, 10 of them resulted in UPS stock rising over the subsequent one month period (twenty-one trading days). This historical pattern reflects 10 out of 14, or about a 71% chance of gain in UPS stock over the coming month. Furthermore, given the momentum in UPS stock, led by a strong earnings beat in Q1, and based on our recently updated United Parcel Service’s Valuation of $212, we believe the stock is likely to see higher levels in the near term.
[Updated: 4/23/2021] UPS Q1 Earnings Preview
United Parcel Service (NYSE:UPS) is scheduled to report its Q1 2021 results on Tuesday, April 27. We expect UPS to likely post revenue and earnings above the street expectations, due to higher demand for residential deliveries. That said, given that several offices remain shut or working with a limited capacity, the business deliveries will likely see continued headwinds. An overall rebound in economic activities likely boded well for the company’s freight forwarding as well as international outbound business. We expect the company to navigate well based on these trends over the latest quarter.
Our forecast indicates that UPS’ valuation is around $185 per share, which is 4% above the current market price of around $178. Our interactive dashboard analysis on United Parcel Service Pre-Earnings has additional details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates UPS’ Q1 2021 revenues to be around $20.8 Bil, 1.5% above the $20.5 Bil consensus estimate. The gradual opening up of economies and vaccination programs in the U.S. has resulted in a pickup in economic activities, and this should bode well for the overall deliveries. E-commerce growth remains the important driver for UPS’ near term growth, and this will likely be visible in terms of higher revenues for the company’s U.S. Domestic Package segment in Q1. Looking back at Q4 2020, revenues grew 21% y-o-y to $24.9 Bil, with 17% gains for U.S. Domestic Package, 27% for International Package, and 29% for Supply Chain & Freight segment. Our dashboard on United Parcel Service Revenues offers more details on the company’s segments.
2) EPS also likely to be above the consensus estimates
UPS’ Q1 2021 adjusted earnings per share (EPS) is expected to be $1.85 per Trefis analysis, 8% above the consensus estimate of $1.72. UPS’ net income of $2.3 billion in Q4 2020 reflected a 26% rise from its $1.8 billion figure in the prior-year quarter. This can be attributed to higher revenues and improved margins. UPS will likely see further margin expansion led by an increase in volume of residential deliveries, bolstering its earnings growth in the near term. For the full-year 2021, we expect the EPS to be $9.05 compared to $8.23 in 2020.
(3) Stock price estimate slightly above the current market price
Going by our United Parcel Service’s Valuation, with an adjusted EPS estimate of around $9.05 and a P/E multiple of around 20x in 2021, this translates into a price of $185, which is slightly above the current market price of around $178. The P/E multiple of 20x for UPS is in-line with the levels seen in late 2020.
Although the continued challenges in the business deliveries will have some impact on UPS’ overall revenue growth rate in 2021, we believe the demand for the residential deliveries, fright forwarding, and international package will see strong growth in the near term, driven by growth in e-commerce and the resumption of economic activities.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While UPS stock may have some more room for growth, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton.