On Wednesday, BofA Securities adjusted its outlook on UPS (NYSE:UPS), increasing the price target to $160 from $157 while maintaining a Neutral rating on the stock.
UPS reported its first quarter 2024 adjusted earnings per share (EPS) at $1.43, a 35% decrease from the previous year but still surpassing both BofA's estimate of $1.24 and the consensus of $1.30. Adjusted operating income for the quarter was reported at $1.75 billion, down 32% year-over-year, yet it outperformed the company's forecast of a 40% decline, exceeding BofA's expectations by $209 million.
The logistics giant's first-half 2024 operating income is anticipated to drop by 20-30%, equating to between $2.08 billion and $2.63 billion. This forecast suggests a sequential increase of $333 million to $883 million, with BofA's projection sitting at a $657 million rise.
UPS CFO Brian Newman attributed the stronger-than-expected results to a surge in volume momentum at the end of March and a shift of some costs from March to April.
Despite a year-over-year decline in domestic volumes by 3.2%, the figure was better than BofA's forecasted 4.8% drop. However, the average revenue per package slightly decreased by 0.3%, indicating potential margin and yield pressures for the second quarter, which could be offset by volume improvements. UPS reaffirmed its full-year revenue target range of $92.0 billion to $94.5 billion, with an expected consolidated operating margin between 10.0% and 10.6%.
CEO Carol Tome highlighted the significance of UPS's recent contract win with the United States Postal Service (USPS), which is projected to be margin accretive in its first year, contrasting with the breakeven point at the end of FedEx (NYSE:FDX)'s contract. UPS also anticipates a slight year-over-year increase in second-quarter domestic average daily volume, with projections of a low single-digit growth in the second half of 2024.
InvestingPro Insights
As UPS continues to navigate through the challenges of the logistics industry, real-time data from InvestingPro provides a clearer picture of the company's financial health and market position. With a market capitalization of $127.01 billion and a Price/Earnings (P/E) ratio of 21.04, UPS stands as a significant player in the Air Freight & Logistics industry. While analysts have recently revised their earnings expectations downwards, the company's commitment to shareholder returns remains evident through its consistent dividend payments over the past 26 years.
InvestingPro Tips highlight that UPS has managed to raise its dividend for 14 consecutive years, signaling confidence in its financial stability and future performance. The company's moderate level of debt and its profitability over the last twelve months further reinforce its resilience in a competitive market. However, investors should be aware that UPS is trading at a high Price/Book multiple of 7.34, which could suggest a premium valuation compared to its tangible assets.
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