United Parcel Service (NYSE:UPS) is scheduled to report its Q2 2021 results on Tuesday, July 27. We expect UPS to likely post revenue and earnings slightly above the street expectations, due to continued high demand for residential deliveries. An overall rebound in economic activities likely boded well for the company’s supply chain as well as international outbound businesses in Q2. We expect the company to navigate well based on these trends over the latest quarter.
However, our forecast indicates that UPS’ valuation is around $212 per share, which is in-line with the current market price of around $213, implying that the stock is fully valued, in our view. Our interactive dashboard analysis on United Parcel Service Pre-Earnings has additional details.
(1) Revenues expected to be slightly above the consensus estimates
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Trefis estimates UPS’ Q2 2021 revenues to be around $23.3 Bil, slightly above the $23.2 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 Q2. Looking back at Q1 2021, UPS’ total revenues grew 27% y-o-y to $22.9 Bil, with strong growth seen across its segments. Our dashboard on United Parcel Service Revenues offers more details on the company’s business segments.
2) EPS also likely to be above the consensus estimates
UPS’ Q2 2021 adjusted earnings per share (EPS) is expected to be $2.85 per Trefis analysis, slightly above the consensus estimate of $2.81. UPS’ net income of $2.4 Bil in Q1 2021 reflected a large 2.4x rise from its $1.0 Bil figure in the prior-year quarter. This can be attributed to higher revenues and improved margins. However, margins may be impacted for UPS in the near term, given increased operating costs, especially during the pandemic. While UPS periodically passes on some of its incremental costs to the end customers, it will be interesting to see how the margins trend in Q2. For the full-year 2021, we expect the EPS to be $11.00 compared to $8.23 in 2020.
(3) Stock price estimate in-line with the current market price
Going by our United Parcel Service’s Valuation, with an adjusted EPS estimate of around $11.00 and a P/E multiple of around 19x in 2021, this translates into a price of $212, which is in-line with the current market price of around $213. Although UPS stock appears to be fully valued currently, if the company reports upbeat results, with margins better than our estimates, and the guidance for the full-year is revised upward, it will result in UPS stock seeing higher levels.
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 is fully valued, 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.