United Parcel Service (NYSE: UPS) is set to release its Q1 2024 results, with expectations of achieving revenue of $22 billion and earnings of $1.38 per share, slightly above street expectations. However, the company is expected to face challenges in Q1 due to tough comparisons from previous periods, impacting volume growth and profitability. Increased labor costs are also likely to dampen profitability for UPS. Despite these challenges, UPS’ stock price has little room for growth, with the company underperforming the S&P 500 in recent years.
UPS stock has declined by 15% over the past three years, from $170 in early 2021 to around $145 currently, compared to a 35% increase in the S&P 500 over the same period. Returns for UPS stock were 27% in 2021, -19% in 2022, and -10% in 2023. The company has consistently underperformed the S&P 500 in recent years, making it challenging for investors to achieve consistent returns. In contrast, the Trefis High Quality Portfolio has outperformed the S&P 500 each year, providing better returns with less risk.
With uncertain macroeconomic conditions, including high oil prices and elevated interest rates, UPS may face challenges in the coming months. From a valuation standpoint, UPS is expected to have limited growth potential, with a valuation estimate of $156 per share, just 10% above its current market price. The company’s stock is currently trading at 17x forward EPS estimate for 2024, aligning with its average over the past five years.
In the previous quarter, UPS reported revenue of $24.9 billion, down 8% year-over-year, primarily due to challenging macroeconomic conditions impacting demand. Operating margins have also declined, largely attributed to a labor deal with the Teamsters Union ratified last year. The adjusted operating margin dropped 290 basis points to 11.2% in Q4, leading to a 32% decrease in adjusted earnings. UPS expects 2024 revenue to be in the range of $92 billion to $94.5 billion.
Despite the challenges faced in Q1, UPS anticipates an improvement in operating margins in the second half of the year. The overall outlook for Q1 is not expected to be positive for UPS, with the stock likely remaining range-bound. UPS has missed consensus revenue estimates in all four quarters of 2023, further highlighting the challenges the company faces. While UPS stock may appear fully valued, comparing it to its peers could provide valuable insights into its performance and position within the industry. Investors can also explore other investment opportunities through Trefis Market Beating Portfolios.
