Here's Why Investors Should Avoid Betting on UPS Stock Now
United Parcel Service, Inc. UPS is being affected by rising capital expenditure and weak guidance.
Let’s delve deeper.
Underperformance: UPS stock dipped 3.6% against its industry’s growth of 13.2% in the past year.
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Southward Earnings Estimate Revisions: The Zacks Consensus Estimate for current-quarter earnings has been revised 36.5% downward over the past 60 days. For the current year, the consensus mark for earnings has moved 12.1% south in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.
Weak Zacks Rank and Style Score: UPS currently carries a Zacks Rank #5 (Strong Sell). Moreover, its Momentum Score of D shows its short-term unattractiveness.
Other Headwinds: Rising capital expenses further add to its woes. In 2022, UPS incurred $4,769 million of capital expenditures, up 13.7% year over year. The company now expects current-year capital expenditures to be $5.3 billion, well above 2022 levels. The elevated capex guidance, even though aimed at long-term benefits, may dent current-year profit margins.
For 2023, United Parcel now anticipates revenues to be around $93 billion (prior view: $97 billion). The consolidated adjusted operating margin is now expected to be around 11.8% (prior view: 12.8%).
The five-year deal with International Brotherhood of Teamsters for better pay and working conditions is worth about $30 billion. Apart from the adverse effects of labor negotiations, weakening demand due to economic slowdown has also led to a decline in the volume of packages shipped. Detailed results will be out on Oct 26.
Key Picks
Some better-ranked stocks for investors interested in the Zacks Transportation sector are GATX Corporation GATX and Ryder System R.
GATX, which presently carries a Zacks Rank #2 (Buy), has strengthened its railcar leasing operations. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For third-quarter and full-year 2023, GATX’s earnings are expected to register 36.6% and 14.3% growth, respectively, on a year-over-year basis.
Ryder, which currently carries a Zacks Rank #2, is benefiting from its consistent efforts to reward shareholders through dividends and share repurchases.
Despite weak market conditions, Ryder reported better-than-expected earnings in second-quarter 2023. In fact, the company has an impressive earnings surprise history. R has surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark once), the average beat being 11.2%.
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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
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GATX Corporation (GATX) : Free Stock Analysis Report
