What’s Next For UPS Stock After The Recent 11% Rise?

[Updated: 4/29/2021] UPS Stock Rise

The stock price of United Parcel Service 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 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 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
DHI
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