United Parcel Service (NYSE: UPS) is set to announce its first-quarter results for 2024, with expectations of posting revenue of $22 billion and earnings of $1.38 per share, slightly above street expectations. The company may face challenges in Q1 due to tough comparisons impacting volume growth and profitability, exacerbated by increased labor costs. Despite the tough quarter, UPS stock is perceived to have limited room for growth, as indicated by the ongoing analysis of UPS’ Earnings Preview highlighting the expected trends in revenues and earnings for the quarter.
Over the past three years, UPS stock performance has shown a 15% decline from early January 2021 levels, currently around $145, in contrast with a 35% increase for the S&P 500. Although UPS stock experienced fluctuations with returns of 27% in 2021, -19% in 2022, and -10% in 2023, it underperformed against the S&P 500 in 2023. As individual stocks struggle to outperform the S&P 500 in recent years, the Trefis High Quality Portfolio, comprising 30 stocks, has consistently outperformed the benchmark index each year, illustrating a consistent growth with less risk.
Considering the uncertain macroeconomic environment characterized by high oil prices and elevated interest rates, UPS could potentially face challenges in underperforming the S&P over the next 12 months, similar to 2023. From a valuation perspective, UPS shows little growth potential with an estimated valuation of $156 per share, just under 10% above its current market price. With UPS stock currently trading at 17x forward EPS estimate of $8.36 for 2024, aligning with the average over the last five years, growth prospects appear constrained.
In the previous quarter, UPS reported a revenue decline of 8% year-over-year to $24.9 billion in Q4, attributing it to challenging macroeconomic conditions impacting overall demand. Operating margins also took a hit due to the impact of the labor deal with the Teamsters Union, ratified in August last year, resulting in an adjusted operating margin contraction of 290 bps to 11.2% in Q4. A 32% decrease in bottom line to $2.47 on an adjusted basis was observed due to lower revenues and margin contraction. UPS anticipates its 2024 revenue to range between $92 billion and $94.5 billion.
Despite the potential impact of the labor deal on Q1 profitability, UPS foresees an improvement in operating margins in the second half of the year. Q1 is expected to be challenging for UPS, with the stock likely to remain range bound. UPS has missed consensus revenue estimates in all four quarters of 2023. While UPS stock appears fully valued, comparing UPS’ performance with its peers can offer valuable insights into industry metrics that matter and aid in making informed investment decisions. The ongoing analysis of UPS’ Earnings Preview sheds light on the anticipated trends in revenues and earnings for the quarter, setting the stage for UPS’ Q1 results announcement.
