Ground shipments, primarily residential deliveries, have been in focus for United Parcel Service (NYSE:UPS) over the recent quarters. The pandemic resulted in people being confined to their homes and there was a surge in e-commerce activities, bolstering the ground shipments for UPS as well as FedEx, especially in 2020. For perspective, average daily package volume for ground shipments rose 14.5% y-o-y to 17.4 million in 2020. This clubbed with a 4% rise in average revenue per piece for ground shipments meant total ground segment revenues grew 20% over the same period.
However, the situation has changed over the last year or so. The vaccination rate has been on a gradual rise with nearly 60% of the U.S. population currently vaccinated against Covid-19. This has resulted in economies opening up gradually, and people have started to venture out of their homes. This also impacted the ground shipment volume for UPS. The company reported a 2.5% decline in volume in Q3 this year, though the volume remained higher by 2% for the nine month period ending Sep 2021. Despite slowing growth in ground shipment volume, UPS managed to post segment revenue growth of nearly 14% thus far in 2021, driven by better price realization.
Overall, UPS’ ground segment revenue has seen a rise of 35% over the last two years. Now, the ground segment has outperformed the company’s other segments, with the U.S. next day air and deferred segments revenue rising 17% and 11%, respectively, over the same period. The demand on the international delivery has remained robust over the last year or so with increased business-to-business demand. Our dashboard on United Parcel Service Revenues offers more details on the company’s business segments. UPS has demonstrated consistent revenue growth over the recent years. In fact, its total revenue growth of 53% over the last six years looks impressive. We also compare UPS’ revenue growth with its peers in United Parcel Service (UPS) Revenue Comparison dashboard.
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Looking forward, the company is likely to see its ground revenues growing at a slower pace compared to what it has seen over the past two years or so. However, with the opening up of economies, the company’s other segments, including next day air, should see a pickup in demand, bolstering the overall revenue growth. We currently forecast $96.5 billion in 2021 and nearly $100 billion in 2022, reflecting a large growth of 30% and 35% from the levels of $74 billion seen in 2019, before the pandemic, respectively.
Wondering how does the top-line expansion translate into bottom-line growth? Explore United Parcel Service Net Income Comparison for more details on the company’s bottom-line and its comparison to UPS’ peers.
The growth in UPS’ business was rewarded by the markets, as well. UPS stock, after losing more than 20% – dropping from $117 at the beginning of 2020 to below $92 in late March 2020 – spiked 122% to around $205 now. That means it is well above the pre-pandemic levels. And, we believe that there is still some room left for growth. Going by our UPS Valuation of $238, based on expected EPS of $11.63 and a P/E multiple of 20x, there is an upside potential of over 15% from its current levels of $205.
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