- UPS stock has fallen over 19% since the beginning of 2022.
- Robust yields can be a good hedge in the current inflation environment.
- Long-term investors may consider buying UPS shares at current levels.
- Find the tools, data and content to help you make better investment decisions at InvestingPro +.
Shareholders in the shipping giant United Parcel Service Atlanta-based (NYSE 🙂 has fallen more than 14.8% over the past 52 weeks and 19.3% year-to-date (YTD). For comparison the index fell by about 19% in 2022. Meanwhile, the shares of bitter rivals FedEx (NYSE 🙂 a fall of 20 percent.
On February 1, the UPS stock rose above $ 233 and reached a record high. On May 19, however, they were down by almost 30%. Currently, the stock’s 52-week range is $ 165.34- $ 233.72, and UPS’s market value is around $ 151.2 billion.
In 2021, United Parcel Service generated revenue of $ 97.3 billion. The logistics company is the market leader in express delivery and courier services in the United States, closely followed by FedEx. It is followed by the US Postal Service and the logistics services from Amazon (NASDAQ :).
This is how the current figures came together
UPS announced its first quarter results on April 26. rose 6.4% year-on-year to reach $ 24.4 billion. Adjusted diluted earnings per share (EPS) were $ 3.05, an increase of 10.1% year over year.
The company generated $ 3.92 billion in free cash flow during the quarter. Earlier this year, UPS raised prices to offset the impact of inflation.
The company’s CEO Carol Tomé commented on the results:
“The flexibility of our network and the continued execution of our strategy gave us another quarter of strong economic performance and put us on track to achieve our consolidated financial targets for 2022.”
Following the publication of the financial figures, the company repeated its targets for the financial year 2022 and expected a record turnover of USD 102 billion. Investors are confident that UPS can continue to exploit the growth potential of the e-commerce segment both in the US and globally.
Prior to the publication of 1. quarterly results, the UPS stock traded at $ 182. On June 10, however, it closed at $ 173.05. The share currently offers a dividend of 3.51%.
What can we expect from the United Parcel Service warehouse?
Outperform is the overall rating for UPS stocks from 28 analysts asked via Investing.com. Wall Street’s average 12-month price target for the stock is $ 224.22, an increase of almost 30% from the current price. The price target is currently between USD 148 and USD 270.
The average fair value of UPS shares InvestingPro after a number of valuation models that take into account eg P / E or P / S multiples or terminal values, is USD 222.32.
UPS Fair Value
In other words, the fundamental valuation suggests a 28.5% gain in equities.
We can also examine UPS’s financial health by ranking more than 100 factors relative to other companies in the industrial sector.
For example, UPS scores 4 out of 5 on growth, price momentum and earnings. With a total of 4 points, the company achieved excellent performance scores.
Currently, the ratio of price to earnings (P / E), price-to-book (P / BV) and price-to-sell (P / S) is 14.1x, 9.8x and 1.5x, respectively. Comparable measurements from the competition are 16.4x, 4.4x and 0.8x, respectively.
We expect United Parcel Service shares to trade in a wider range between $ 160 and $ 180 in the coming weeks. Then a new uptrend could start for UPS.
UPS shares for the portfolio
United Parcel Service optimists who are not worried about short-term volatility can buy the stock now. Your price target would be $ 222.32, as suggested by the quantitative models.
Alternatively, investors may consider buying an exchange-traded fund (ETF) that invests in UPS stocks. These means include, for example:
- iShares Transportation Average ETF (SNEEZE:)
- Select Sector SPDR® Fund (SNEEZE:)
- ProShares Supply Chain Logistics ETF (SNEEZE:)
- Vanguard Industrials Index Fund ETF shares (SNEEZE:)
- US Global Sea to Sky Cargo ETF (SNEEZE:)
Investors who expect the UPS stock to rise in the coming weeks may invest in a bull-call spread strategy.
Most option strategies are not suitable for all retail investors. As such, the following discussion of UPS stocks is given for informational purposes and not as an actual strategy for the average retail investor to use.
Bull call spread on UPS shares
- Price at time of writing this article: $ 173.05
With a bullish call spread, the trader owns a long call with a lower strike and a short call with a higher strike. Both parts of the strategy relate to the same underlying stock (ie United Parcel Service) and expiration date.
The trader wants the UPS stock to rise. With a bull call spread, potential gains are limited, as are potential losses. The trade is carried out at net price (or net debit), which is the maximum loss.
The bullish call spread trade discussed today involves buying the call for a strike of $ 175, which expires on August 19 at a price of $ 10.10 and selling a call for a strike of $ 180 at a price of $ 7.70 .
Buying this call spread will cost the investor around $ 2.40 or $ 240 per call. contract, which is also the maximum risk for this trade.
We must note that if the position is held to maturity and both parts of the transaction expire worthless, the trader can easily lose this amount, ie. if the UPS stock price at the expiration is below the strike price for the long call (or in our example $ 175).
To calculate the maximum potential win, you can subtract the premium paid from the spread between the two strike prizes and multiply the result by 100. In other words: ($ 5.00 – $ 2.40) x 100 = $ 260.
The trader will realize this maximum profit if the price of United Parcel Service shares at the expiration is on or above the short call strike (ie $ 180 in our example).
Conclusion on UPS
UPS stocks have come under heavy pressure in recent months. Still, the decline has improved the safety margin for investors looking to buy and hold the stock. Therefore, they may consider investing soon. Alternatively, experienced traders can also follow an option strategy to take advantage of a possible rise in the UPS stock price.
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