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United Parcel Service is scheduled to report its Q3 2021 results on Tuesday, October 26. We expect UPS to likely post revenue below and earnings above the street expectations. The overall ground delivery volume may see a slowdown given the opening up of economies, as people have now started to venture out of their homes. That said, an overall rebound in economic activities likely boded well for the company’s supply chain as well as international businesses in Q3. FedEx FDX faced margin pressure in its latest quarter, owing to the rise in overall wages, and investors will be closing watching the margins for UPS in Q3. Overall, we expect the company to navigate well over the latest quarter. Furthermore, our forecast indicates that UPS’ valuation is around $220 per share, which is 12% above the current market price of around $195, implying that the stock has some more room for growth, in our view. Our interactive dashboard analysis on United Parcel Service Pre-Earnings has additional details.
(1) Revenues expected to be below the consensus estimates
Trefis estimates UPS’ Q3 2021 revenues to be around $22.3 billion, slightly below the $23.6 billion consensus estimate. The gradual opening up of economies and vaccination programs in the U.S. has resulted in a pickup in economic activities, and this should bode well for the overall deliveries. E-commerce growth remains the important driver for UPS’ near term growth, and this will likely be visible in terms of higher revenues for the company’s U.S. Domestic Package segment in Q3, though a slowdown in growth is likely. Looking back at Q2 2021, UPS’ total revenues grew 14% y-o-y to $23.4 billion, with growth seen across its segments. Our dashboard on United Parcel Service Revenues offers more details on the company’s business segments.
2) EPS also likely to be above the consensus estimates
UPS’ Q3 2021 adjusted earnings per share is expected to be $2.65 per Trefis analysis, slightly above the consensus estimate of $2.54. UPS’ net income of $2.7 billion in Q1 2021 reflected a large 45% rise from its $1.9 billion figure in the prior-year quarter. This can be attributed to higher revenues and improved margins. However, margins may be impacted for UPS in the near term, given increased operating costs, especially during the pandemic. While UPS periodically passes on some of its incremental costs to the end customers, it will be interesting to see how the margins trend in Q3, especially after the impact seen on FedEx. For the full-year 2021, we expect the EPS to be $11.42 compared to $8.23 in 2020.
(3) Stock price estimate in-line with the current market price
Going by our United Parcel Service’s Valuation, with an adjusted EPS estimate of around $11.42 and a P/E multiple of around 19x in 2021, this translates into a price of $220, which is around 12% above the current market price near $195. Although UPS stock appears to have some more room for growth, if the company reports upbeat results, with margins better than our estimates, and the guidance for the full-year is revised upward, it will result in UPS stock seeing even higher levels.
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Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While UPS stock has some more room for growth, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton.
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