What’s Driving UPS Stock Higher?

Despite seeing a 9% rise over the last six months, at the current price of around $212 per share, we believe UPS stock (NYSE: UPS) has more to go. UPS stock rose from levels of $195 in early September 2021 to $233 in early February 2022 before cooling off to $212 currently. The 9% move for UPS in the last six months compares with -3% returns for the broader S&P500 index. Looking at the longer term, UPS stock is up a solid 118% from levels seen in late 2018. Our dashboard – Why UPS (UPS) Stock Moved – provides more details on the factors behind this move over the last three years.

Now, much of this growth over the last three years was driven by the company’s P/S ratio, which rose from 1.1x in 2018 to 1.8x currently. UPS’ revenue increased 42% over the same period. The pandemic resulted in higher revenues in 2020 and 2021, as people stayed indoors with shelter-in-place restrictions and resorted to e-commerce for their needs, resulting in very high demand for residential ground shipments for UPS. The company’s revenue of $97.3 billion in 2021 compares with $71.9 billion in 2018. The total shares outstanding increased marginally to 874 million currently, compared to 866 million in 2018. This meant that revenue per share rose 41% to $111.33 in the last twelve months, vs. $82.95 in 2018.

Given the rebound in economic activities and gradual lifting of shelter-in-place restrictions over the recent quarters, the volume growth of ground deliveries has slowed. While UPS saw a 14.5% rise in ground average daily package volume in 2020, the growth slowed to 1.6% in 2021. That said, with economic growth picking up pace, UPS’ other businesses, including next day air and international, are expected to see robust growth going forward. The company has guided for $102 billion in revenue in 2022, reflecting a 5% y-o-y growth if achieved.

While we believe that there is more room for growth in UPS stock going forward, there are near-term headwinds. Given the geopolitical tensions between Russia and Ukraine, it is likely that the broader markets may remain volatile in the near term, impacting UPS stock as well.