[Updated: 7/28/2021] UPS Stock Update
The stock price of United Parcel Service (NYSE:UPS) reached its all-time high of $217 in May this year, and it largely remained above $200 levels since then, before a recent sell-off in the stock, which led to over an 8% drop in its price to levels of $195 currently. Much of this fall came yesterday after the company announced its Q2 results. Actually, UPS’ Q2 results were better than Trefis as well as the consensus estimates expected. The company reported sales of $23.4 billion, up 14% y-o-y, just ahead of the $23.3 billion Trefis estimate and $23.2 billion consensus estimate. This growth was driven by a 30% jump in international business and 10% growth in the U.S. domestic business. Looking at the bottom line, adjusted EPS surged 44% y-o-y to $3.06 in Q2 2021. The bottom-line was well above the $2.85 figure per Trefis analysis and $2.81 figure per the consensus estimate.
Despite upbeat results, UPS stock fell nearly 7% following the earnings announcement. This can be attributed to declining volume for the company’s U.S. business. The much talked about Ground segment for UPS, which saw a massive growth since the beginning of the pandemic, due to an increased demand for e-commerce orders, started to see lower volume with the gradual opening of the economy. Ground volume in the U.S. was down 4% y-o-y in Q2. This did not bode well with the investors.
Now, after a 8% fall in a week, will UPS stock continue its downward trajectory over the coming weeks, or is a recovery in the stock imminent? According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for UPS stock average nearly 0% in the next one-month (twenty-one trading days) period after experiencing an 8% drop over the previous week (five trading days), implying that UPS stock may just rest at current levels for now. That said, while the historical performance suggests that UPS stock may not see any growth in the near-term, our revised forecast indicates that UPS’ valuation is around $220 per share, which is 12% above the current market price of around $195.
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 1 day!
MACHINE LEARNING ENGINE – try it yourself:
IF UPS stock moved by -5% over five trading days, THEN over the next twenty-one trading days UPS stock moves an average of 2%, with a good 64% probability of a positive return over this period.
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 1.6% 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: 7/23/2021] UPS Q2 Earnings Preview
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
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.