United Parcel Service, Inc. UPS is aided by numerous tailwinds despite its high capital expenditures affecting bottom-line growth.
Let’s delve into the positives.
UPS’ solid free cash flow generation is a major positive. During 2018, the company’s free cash flow surged to $6.13 billion, exceeding its own expectations. In the first quarter of 2019, UPS generated free cash flow of around $760 million besides cash from operations of $2.3 billion. The large numbers are indicative of the company’s sound financial position and highlights its increased ability to add shareholder value.
With a robust free cash flow, UPS has in fact been engaging more in shareholder-friendly activities. This February, the company increased its quarterly dividend by 5.5% to 96 cents per share. Moreover, during the first quarter, it paid approximately $867 million as dividend to shareholders, up 5.5% year over year and also bought back 2.4 million shares for $250 million. During 2018, UPS rewarded shareholders to the tune of $4.2 billion through dividends ($3.2 billion) and buybacks ($1 billion).
United Parcel Service, Inc. Price and Consensus
United Parcel Service, Inc. price-consensus-chart | United Parcel Service, Inc. Quote
Further, solid e-commerce growth has been boosting the company’s performance over the last few quarters. Notably, it anticipates cross-border e-commerce volume to expand 28% during 2019-2021. In this regard, the partnership inked with the e-commerce firm Inxeption this March is aimed at simplifying business to business (B2B) logistics. B2B e-commerce is a fast-evolving market, expected to reach $1.8 trillion by 2023, per market research firm. Forrester. The company’s deal with Clean Energy Fuels, announced in May, to buy 170 million gallon equivalents of renewable natural gas through 2026 also holds promise.
In light of these positives, we believe, investors should retain this Zacks Rank #3 (Hold) stock in their portfolios now.
Some better-ranked stocks in the broader Transportation sector are SkyWest, Inc. SKYW, GATX Corporation GATX and Trinity Industries, Inc. TRN, each carrying a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of SkyWest have surged more than 34% so far this year. Meanwhile, both GATX and Trinity boast an encouraging earnings history. While GATX outperformed the Zacks Consensus Estimate in each of the trailing four quarters, Trinity surpassed estimates in three of the preceding four quarters.
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