In this comprehensive stock evaluation report, we will delve into the growth potential and investment value of United Parcel Service, Inc. (UPS). As the world's largest parcel delivery company, UPS operates in a dynamic industry that is currently facing headwinds from a weakening global macro environment. UPS is set to release its Q4 results tomorrow, with analysts expecting a 32% year-over-year decline in EPS to $2.46 and a 6% drop in revenue to $25.40 billion.
In Q3, UPS faced challenges arising from international and freight forwarding volume pressures due to recession in some countries and labor uncertainties in the US. However, the company has been gaining volume momentum since the contract ratification. As for Q4, UPS does not provide quarterly guidance, but it expressed its preparation for the peak holiday season, anticipating healthy peak volume.
The recent earnings miss from FedEx (FDX) has raised some concerns for UPS's Q4 report. FedEx lowered its FY24 revenue outlook to a low single-digit decline, while UPS has not missed on EPS in any quarter since Q1 2020. The stock has been consolidating in the $155-165 range over the past two months, following a significant decline from its highs in April 2023.
UPS generates around 64% of its total revenue from domestic U.S. package operations and 20% from international package services. Air and ocean freight forwarding, truckload brokerage, and contract logistics make up the remaining portion of its revenue stream. Currently, 23 Wall Street analysts cover UPS, rating it as a Moderate Buy on average.
With a market cap of $135.71 billion and an enterprise value of $153.87 billion, UPS trades at a forward P/E ratio of 16.18. This is lower than the current forward P/E ratio for the S&P 500 of 18.7. Compared to its peers in the Industrials sector, which currently trade at a 24.37 price-to-earnings ratio on a trailing twelve-month basis, UPS is a relatively cheaper investment option.
In summary, while UPS has faced recent challenges in the weakening global macro environment, its growth potential remains intact. The upcoming Q4 results will provide more insight into how the company is navigating these challenging market conditions and its investment value. Investors should closely follow the market reaction to UPS's earnings report and analyze the subsequent guidance and management commentary to make informed financial decisions.