United Parcel Service (UPS) is the largest package delivery company in the world and a leading provider of global supply chain management solutions.
The company offers a broad range of industry-leading products and services via its vast presence across every continent. Such services include transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, and insurance, among others.
The business is benefiting from several major economic and societal trends, such as rapid urbanization and e-commerce growth. With an ever-growing demand for fast and reliable deliveries, UPS is set to continue benefiting in the coming years. In my view, the company is well-positioned to keep delivering improving financials, while its dividend is certainly enticing. That said, the stock does not currently trade at a steep discount whatsoever. For this reason, I am neutral on the stock.
Latest Results
UPS’s Q3-2021 results once again illustrated the company’s ongoing improvements in performance driven by growing e-commerce sales and the need for faster deliveries.
The company generated revenues of $23.2 billion, a 9.2% increase year-over-year. Specifically, The domestic (U.S.) segment sales grew 7.4%, while the International and Supply Chain & Freight divisions grew revenues by 15.5% and 8.4%, respectively.
Adjusted net income came in at $2.38 billion or $2.71 per share versus $2.28 in the prior-year period. While guidance for the company’s upcoming earnings and Fiscal 2021 results was not provided, UPS expects to allocate around $4.2 billion in CapEx for the year. Based on this and UPS’s results during the first nine months of the year, analysts expect Fiscal Year 2021 EPS of $11.60.
Dividend and Valuation
UPS has grown its dividend for 12 consecutive years now. The company has never slashed its dividend since the first one it paid in 2000. However, it paused its hikes during the Great Financial Crisis to preserve liquidity.
The company’s 10-year dividend per share CAGR stands at around 7%. However, the latest DPS hike was by just 1%, while the dividend’s growth pace has been overall declining during this period.
In my view, unless UPS’s profitability improves, I find a reacceleration in dividend growth mostly unlikely. Still, it’s worth noting that the payout ratio currently stands at $4.08/$11.60 = ~35%. Hence the payouts should be quite safe nonetheless.
Based on analysts’ EPS estimates for the year, the stock is trading at a P/E of around 18.7. In my view, this is a fair valuation for the stock considering its ongoing growth drivers and solid financials. However, it certainly does not imply a discount which was likely the case during this period last year.
Wall Street’s Take
Turning to Wall Street, United Parcel has a Moderate Buy consensus rating, based on nine Buys, six Holds, and one Sell assigned in the past three months. At $225.40, the average United Parcel stock price prediction implies 3.1% upside potential.
Conclusion
UPS is a quality stock currently riding a number of healthy trends assisting its business model. I believe the stock is overall fairly valued, and the 1.9% dividend yield makes for a nice supplement to the stock’s total return potential. That said, UPS is not particularly cheap at this time, which is the reason I am neutral on the stock.
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Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.
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