Earnings Beat In Cards For UPS Stock?

United Parcel Service (NYSE: UPS) is scheduled to report its Q1 2023 results on Tuesday, April 25. Although UPS stock may trade higher post its earnings release, given its earnings are expected to be slightly above the street expectations, we believe it is fully valued at its current levels. While the big e-commerce surge seen through the lockdown phase of the Covid-19 pandemic has now cooled off, impacting the delivery volumes for logistics companies, UPS should benefit from its pricing actions. Our interactive dashboard analysis on United Parcel Service Earnings Preview has additional details.

(1) Revenues expected to be marginally above the consensus estimates

• Trefis estimates UPS’ Q1 2023 revenues to be around $23.1 billion, reflecting a mid-single-digit y-o-y decline and slightly higher than the $23.0 billion consensus estimate.
• Higher price realization should aid the company’s top-line growth. However, the average volume is likely to trend lower.
• Looking back at Q4 2022, UPS’ total revenues fell 3% y-o-y to $27.0 billion, with an 8% decline for its International segment, due to lower volume and softness in the China market.
• On a consolidated basis, UPS posted a 5.2% rise in average revenue per piece and a 4.5% decline in average daily package volume.
• Our dashboard on United Parcel Service Revenues offers more details.

(2) EPS to be above the consensus estimates

• UPS’ Q1 2023 adjusted earnings per share (EPS) is expected to be $2.28 per Trefis analysis, slightly above the $2.22 consensus estimate. This compares with the $3.05 figure the company reported in the prior-year quarter.
• UPS’ net income of $3.2 billion in Q4 2022 reflected a 0.1% rise from its prior-year quarter figure.
• This can be attributed to higher other income, which bolstered the bottom line despite lower revenues and around a 200 bps fall in operating margin.
• For the full-year 2023, we expect the EPS to be lower at $11.65, compared to an estimated $12.94 in 2022.

(3) UPS stock looks like it is fully valued

• We estimate United Parcel Service’s Valuation to be $199 per share, which aligns with its current market price.
• At its current levels, UPS stock is already trading at 17x forward EPS estimate of $11.65 for 2023, compared to the last three-year average of 15x, implying that the stock is fully valued.
• However, if the company reports upbeat results and provides 2023 guidance better than the street estimates, it is likely that the P/E multiple will be revised upward, resulting in higher levels for UPS stock.