USPS -0.59% ▼ faced a 15% drop over the next 5 days following its Q4 earnings report, sparking concerns about its revenue and client volume. However, despite exceeding EPS expectations, the company’s revenue fell short due to the sale of Coyote Logistics and a disappointing reduction in business with Amazon.
A closer look at UPS’s financials reveals some promising developments that were overlooked by Wall Street. The company continues to push operational efficiencies and refine its network to handle more profitable cargoes, such as healthcare products and parcels from small-to-mid-sized businesses (SMBs). This pivot is innovative because those segments can bring higher margins and aren’t as reliant on Amazon’s massive order flow.
Recent data suggests that SMBs accounted for roughly 28.9% of UPS’s U.S. volume in 2024, with management expecting this to climb past 30% over the next two years. This diversification of customer base aligns perfectly with the company’s emphasis on revenue quality rather than chasing sheer volume from a single giant client.
Furthermore, UPS’s international segment is performing well, supported by rising demand in key export markets. The company has also outlined a $1 billion cost-saving plan aiming to optimize its U.S. network and reduce inefficiencies. If implemented effectively, it should translate into better margins and higher profits.
With shares trading at a forward P/E of around 14.4x after its recent re-rating, UPS presents an attractive income opportunity at a bargain-basement price. The stock has been down-trending for around 3 years, making it a cheap pick-up at ~$100 per share. Additionally, UPS’s proven history of rewarding shareholders and its above-average dividend yield make it an appealing option for income-focused investors.
The consensus on Wall Street is slightly optimistic, with only one analyst changing their stance since the last report. The logistics giant has gathered 11 Buy, six Hold, and two Sell ratings over the past three months, obtaining a Moderate Buy consensus. Currently, UPS stock carries an average price target of $135.06 per share, which implies an 18% upside potential from current price levels.
Despite recent setbacks, UPS remains a compelling investment opportunity given its long-term ability to reward loyal shareholders. Its cost savings initiatives, revenue diversification, and higher-margin customer segments demonstrate the company’s ability to adapt and stay competitive.
Source: https://www.tipranks.com/news/ups-is-bargain-of-the-year-after-recent-q4-earnings-fumble