UPS Stock Declines Despite Upbeat 2026 Targets: Here's Why
United Parcel Service UPS, which is struggling due to weak demand-induced volume woes and high costs, unveiled rosy targets for 2026 at its investor and analyst day. Even though long-term targets appeared rosy, near-term struggles are likely to continue. Revenues in first-half 2024 are expected to decline 1-2% year over year. Consolidated adjusted operating profit is likely to plummet 20-30% year over year in first-half 2024. The gloomy near-term forecasts resulted in the stock declining 8.16% on Mar 26.
The scenario is likely to brighten from the second half of the current year. Consolidated revenues in the second half of 2024 are expected to increase 4-8% year over year. Consolidated adjusted operating profit is likely to increase 20-30% year over year in the second half of 2024. Management expects current-year consolidated revenues in the $92-$94.5 billion range. The Zacks Consensus Estimate is currently pegged at $93.29 billion, roughly in line with the mid-point of the guided range. Current year consolidated adjusted operating profit is expected between $9.2-$10 billion.
Per Carol Tomé, UPS’ chief executive officer, “After coming off a difficult market in 2023, the small package industry is poised to return to growth in 2024 and beyond. Over the next three years, we plan to make bold moves to create a growth flywheel in premium markets while at the same time drive higher productivity and efficiency.” Driven by the likelihood of the scenario brightening, management revealed rosy financial targets for 2026.
UPS expects 2026 consolidated revenues in the band of $108-$114 billion. The consolidated adjusted operating margin is expected to exceed 13%. Segment-wise adjusted operating margin in 2026 for the U.S. Domestic Package, International Package and Supply Chain Solutions units are expected to be 12%, 18-19% and around 12%, respectively. Capital spending from 2024–2026 is likely to be approximately 5.5% of total revenues.
Zacks Rank
UPS currently carries Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the broader Transportation sector may consider better-ranked stocks like GATX Corporations GATX and SkyWest SKYW. While GATX currently carries a Zacks Rank #2 (Buy), SKYW sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%.
The Zacks Consensus Estimate for 2024 earnings has been revised 9% upward over the past 90 days. The company has an expected earnings growth rate of 6.5% for 2024. Shares of GATX have rallied 23% in the past year.
SkyWest's fleet modernization efforts are commendable. The Zacks Consensus Estimate for SKYW’s 2024 earnings has improved 26% over the past 90 days. Shares of SkyWest have surged 244% in the past year.
SKYW has an expected earnings growth rate of more than 100% for 2024. The company delivered a trailing four-quarter earnings surprise of 128.02%, on average.
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