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Here's Why UPS Stock Should be Retained Your Portfolio

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·3 min read
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United Parcel Service, Inc. UPS has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of its growth. The company has expected long-term earnings per share (three to five years) growth rate of 12%. For 2021 and 2022, earnings are expected to grow at a rate of 31.4% and 3.9%, respectively, on a year-over-year basis.

The stock has rallied 81.4% in the past year compared with 80.6% growth of the industry it belongs to.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Key Growth Drivers

UPS is being aided by significant increase in home deliveries amid the prevalent coronavirus pandemic. Notably, the need for door-to-door delivery of essentials during this crisis is rising. Owing to the surge in residential delivery volumes and strong outbound demand from Asia, UPS performed very well in 2020. Even in first-quarter 2021, UPS outperformed primarily owing to the 14.3% year over year increase in consolidated average daily volumes. We expect the company’s second-quarter 2021 results (scheduled to be out on Jul 27) to be aided by high e-commerce demand as well.

We are also impressed by the company’s efforts to reward its shareholders through dividends even in the current uncertain times. Notably, UPS paid out dividends worth $3.6 billion even amid the coronavirus- ravaged 2020, up 5.2% year over year. Continuing its pro-shareholder stance, in February, UPS' board approved a 1% increase in its quarterly dividend to $1.02 per share. In first-quarter 2021, UPS paid out dividends in excess of $850 million.

Primary Concern

Increase in operating expenses are concerning. Notably, operating costs escalated 18.7% in first-quarter 2021, due to rise in costs at all three segments. Operating expenses increased 14.1%, 24.4% and 30.6% at the U.S. Domestic Package, International Package and Supply Chain & Freight units, respectively, in the March quarter.

Zacks Rank & Stocks to Consider

UPS currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Landstar System, Inc. LSTR, Old Dominion Freight Line, Inc. ODFL and FedEx Corporation FDX. Landstar and Old Dominion carry a Zacks Rank #2 (Buy), while FedEx sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for Landstar, Old Dominion and FedEx is projected at 12%, 21.9% and 12%, respectively.

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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report

FedEx Corporation (FDX) : Free Stock Analysis Report

Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report

Landstar System, Inc. (LSTR) : Free Stock Analysis Report

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