UPS With Nobias Technology: Case Study on UPS, a dividend paying company with growth opportunities
Shares of United Parcel Service, Inc (UPS) fell 6.47% this week. UPS shares are now down 10.55% on a year-to-date basis, underperforming the S&P 500, which has seen its value fall by 6.43% during 2022 thus far. However, even with this underperformance in mind, the credible authors and analysts tracked by the Nobias algorithm remain largely “Bullish” on UPS shares.
Sirisha Bhogaraju, A Nobias 5-star rated author recently published an article highlighting her bullish opinion on UPS shares. Bhogaraju began her piece saying, “United Parcel is a leading provider of package delivery services and global supply chain management solutions with an extensive presence in over 220 countries.” She also highlighted the strong performance that UPS shares have generated recently, writing, “UPS shares touched a new all-time high of $233.72 on February 1, as the company beat Q4 expectations, issued a robust outlook and raised its quarterly dividend by 49% to $1.52 per share. This dividend hike marked the largest increase in the company’s history.”
Regarding UPS’s fundamentals, Bhogaraju wrote, “UPS reported Q4 revenue of $27.8 billion, up 11.5% from the prior-year quarter and ahead of analysts’ estimates of $27 billion.” Bhogaraju continued, saying, “Adjusted EPS grew 35% to $3.59, beating analysts’ forecasts of $3.09.”
UPS April 2022
Looking ahead, Bhogaraju notes that UPS management expects to see growth continue. Bhogaraju wrote, “UPS expects revenue of about $102 billion in 2022, compared to $97.3 billion in 2021, and adjusted operating margin of about 13.7%, up from 13.5% in 2021.”
Regarding Wall Street’s outlook on the stock, Bhogaraju said, “Overall, the Street is cautiously optimistic on the stock, with a Moderate Buy consensus rating based on 11 Buys, eight Holds and one Sell. The average United Parcel price target of $241.35 suggests 12.42% upside potential from current levels.”
Bhogaraju also covered the upside potential of UPS’s largest rivals, FedEx (FDX) and XPO Logistics (XPO). She said, “The average FedEx price target of $295.75 implies 31% upside potential from current levels.” She also said, “The average XPO Logistics price target of $99.27 implies 30.2% upside potential from current levels. Therefore, as great as UPS’s recent performance has been, it’s clear that the company continues to face strong competition in its industry which could pose a threat to growth moving forward.
Although competition in the logistics space remains fierce, UPS continues to use innovation and forward thinking partnerships to attempt to solve problems, especially with regard to carbon emissions and the “last mile” conundrum that has vexed so many delivery companies (regarding difficulties with the last several miles of deliveries, from large logistics facilities to consumers’ doorsteps in a profitable manner).
In a recent Yahoo Finance article, Nobias 4-star rated author, Nick Carey, highlighted some of UPS’s recent attempts to solve such issues. Carey noted that Luke Wake, UPS vice president of fleet maintenance and engineering, recently told Reuters that the company is trailing roughly 100 electronic bikes, built by the British firm Fernhay, as a means to make last mile deliveries.
Carey wrote, “As well as making public commitments to cut their carbon footprints, package-delivery companies are seeking new ways to cut the cost of last-mile deliveries amid soaring e-commerce orders.” Touching upon one of the benefits of the eBike program, Carey said, “The vehicle is only 36 inches (91 cm) wide, so can legally use bike lanes and enter pedestrian zones that UPS' vans and trucks cannot access. Under normal circumstances, drivers would have to get out of their vehicles, load packages on carts and haul them to customers.”
Carey quoted Wake, who said, "There are more and more opportunities for zero-emission solutions like this that can alleviate inner-city congestion.” Carey also notes that UPS is also working with electric van makers like UK startups Arrival and Tevva, plus U.S. truck maker Xos. It’s this forward-thinking management style which has allowed UPS to generate reliable growth throughout its history.
Khen Elazar, a Nobias 5-star rated author, recently published an article at Seeking Alpha titled, “UPS Is A Decent Addition To Your Dividend Growth Portfolio” which put a spotlight on UPS’s historical results. Regarding UPS’s top-line, Elazar said, “Revenues have shown decent mid-single-digits annual growth over the last decade. It amounted to an 81% increase in sales over the last ten years. The company's growth rate is mainly organic and is derived by a higher volume of shipments and the addition of value-added services to clients. Going forward, the consensus of analysts, as seen on Seeking Alpha, expects UPS to keep growing sales at an annual rate of ~4% in the medium term.”
Moving to the bottom-line results, Elazar continued, “The EPS (earnings per share) has increased at a much faster rate than the company's sales. The company's EPS has almost quadrupled, with a significant almost 50% EPS increase in 2021. The reason for such a fast growth rate was the margin expansion over the past decade and particularly in 2021. It has happened due to the company's additional services, and the price increases we see across the board in logistics. Going forward, the consensus of analysts,, expects UPS to keep growing EPS at an annual rate of ~5% in the medium term.” And, he notes, this operational success has trickled down into the pockets of shareholders via a reliable increasing dividend.
Elazar said, “The dividend is another bright point for UPS investors. The company has been increasing dividends for twelve years, and the reason the streak isn't longer is that it froze its dividend for one year during the financial crisis. The company hasn't reduced the dividend for over twenty years. In 2021, the dividend was raised by 49% in line with the EPS growth to maintain a 50% payout in the coming twelve months. Investors should expect mid-single digits dividend growth rate in line with the company's EPS growth.” He also noted that UPS has used shareholder buybacks to retire approximately 10% of its outstanding shares over the prior decade.
Elazar concluded his article with a bullish outlook, saying, “UPS is a great company across the board. The company shows strong fundamentals that lead to an ever-growing ability to return capital to shareholders in the form of buybacks and dividends. In addition, it has several significant growth opportunities and high barriers to entry. Therefore, I believe that due to the limited risks, UPS is poised to keep performing.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
BOOX Research, a Nobias 4-star rated author, also recently posted a bullish article on UPS at Seeking Alpha. In their article, BOOX noted that UPS shares are trading with a 16.0x forward price-to-earnings ratio, which, in their opinion, represents an attractive entry. BOOX Research wrote: “As it relates to valuation, we note that UPS's current forward P/E ratio and 1-year forward P/E based on the 2023 consensus EPS is below the 5-year average for the multiple closer to 22x. The dynamic can also be observed in UPS's EV to EBITDA multiple at 9.6x and 11.4x on a forward basis, which are both below the 5-year average closer to 13.5x. While the valuation multiples are slightly skewed by depressed earnings during the height of the pandemic in 2020, a more normalized range between 2015 and 2019 closer to 21x still suggests UPS is simply undervalued.”
BOOX’s research highlighted their bullish stance in the conclusion to their note as well, saying: “We rate UPS as a buy with a year ahead price target of $260 representing a forward P/E of 20x on the current 2022 consensus earnings. We like UPS as a unique "blue chip" defined by its leadership position, steady growth, solid fundamentals, and positive long-term outlook. These factors should allow shares to continue commanding a premium to the market with upside to its current valuation. The dividend increase with a yield near 3% adds to the allure of the stock for diversified portfolios.”
Looking at the opinions expressed by the credible authors and Wall Street analysts (only those with Nobias 4 and 5-star ratings) that our algorithm tracks, this bullish sentiment appears to be widely held. 92% of the recent articles published by credible authors have expressed “Bullish” bias. And, looking at the credible analysts that we track, the average price target being applied to UPS shares is $271.67. Relative to UPS’s current share price of $190.97, this consensus price target represents upside potential of approximately 42.25%.
Disclosure: Nicholas Ward has no position in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.