United Parcel Service, Inc. (NYSE: $UPS) is an international shipping company founded in 1907. Since then, it has grown into one of the biggest courier companies in the world, with a market cap of over $122 billion.
On Tuesday, March 26, 2024, UPS revealed a strategic initiative and issued guidance for 2026 ahead of its investor day conference to a negative market reaction.
Details of the Announcement
UPS revealed details of a new initiative dubbed “Network of the Future,” which aims to optimize and increase automation, lowering costs. Additionally, the company has various initiatives lined up to boost its market share and expand its addressable market for incremental growth.
The new initiative is a three-year strategy after the last one came to its conclusion this year. Commenting on the new plan, UPS CEO Carol Tomé acknowledged that 2023 had been a difficult year. However, she expects the small package industry to return to growth in 2024.
Tomé stated, “The growth and productivity initiatives we are executing will result in higher revenue, expanded operating margins and increased free cash flow to deliver long-term value to our shareowners.”
UPS Issues Guidance
For 2024, UPS forecast a 40% drop in profits year-over-year. According to Tomé, 2024 could be the “toughest” year on record for the company.
On a more positive note, the company forecast a consolidated adjusted operating margin of over 13% in fiscal 2026, compared to 10.9% in fiscal 2023, its most recent full-year results. It expects a US domestic package segment adjusted operating margin of 12% compared to 9.3% in fiscal 2023 and an international package segment operating margin of 18%-19% compared to 19.5% in fiscal 2023.
Its fiscal 2026 revenue forecast is $108 billion to $114 billion, which is a 25.27% increase from the $91 billion reported in 2023 at the high end and above the analyst’s forecast of $101.1 billion.
Additionally, the company forecast $17 billion – $18 billion in free cash flow, compared to $5.3 billion in fiscal 2023, and a CapEx of 5.5% from 2024 to 2026, below the 5.7% reported in fiscal 2023.
UPS Stock Performance
On Tuesday, March 26, 2024, UPS shares were down 8.16% at the closing bell on the disappointing guidance for 2024. It marked an end to a five-day streak of consecutive gains and a return to a downtrend that began in February 2022.
Since February 2022, UPS shares have lost 32.30% of their value and retreated 9.19% since the start of 2024. The shares have underperformed the market, losing 24.90% of their value in the past 52 weeks, compared to the 29.19% gain of the S&P 500 as of Tuesday’s closing bell.
Stock Forecast
Based on the opinions of 19 stock analysts, UPS has an overall moderate buy rating. They forecast a broad price range for the stock in the next 12 months, with a high of $190 and a low of $95. Their average forecast is $161.78, a 12.51 upside based on Tuesday’s closing price.
Is UPS a Buy?
While UPS has a great three-year strategic plan, the immediate guidance from the company fell short of investor expectations. However, UPS could still be an attractive option for long-term investors. With a forward P/E ratio of 17.15, it is fairly priced.
Another lucrative aspect of this stock is its high dividend yield of over 4%, compared to the 1.74% of its peer, FedEx. As a long-term investment choice, UPS is an attractive option. Consequently, the moderate buy rating is an accurate representation of how the stock could perform in the next 2-3 years as the small packages delivery industry picks up steam in 2024 and beyond.
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