Which Stock Is A Better Pick For The Next Three Years – UPS Or CMCSA?

We believe that Comcast stock (NASDAQ: CMCSA), included in the S&P500, is a better pick than UPS stock (NYSE: UPS), also in the S&P500, given its better prospects. Although these companies are from different sectors, we compare them because they have a similar P/EBIT ratio of about 12.5x. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better understand their valuations.

Looking at stock returns, Comcast has fared much better with 19% returns this year, while UPS is up 3%, and the broader S&P500 index is up 16%. There is more to the comparison, and in the sections below, we discuss why we believe Comcast will offer higher returns than UPS in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of UPS vs. Comcast: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. UPS’ Revenue Growth Is Better

• UPS’ 10.8% average annual revenue growth rate in the last three years is better than 3.9% for Comcast.
• The revenue growth for UPS over the recent years was driven by shelter-in-place restrictions and the spread of the Covid-19 virus, resulting in e-commerce growth. However, this trend is now cooling off, affecting revenue growth rates and delivery volumes.
• For perspective, UPS saw a 14.5% rise in ground average daily package volume in 2020, but the growth slowed to 1.6% in 2021, and it was down 2.3% in 2022.
• Similarly, Comcast has seen considerable pressure over the last year or so as growth for its broadband business has stalled amid an easing of Covid-19 tailwinds and also due to competition from fixed wireless broadband services. Given that wireless capacity is more limited than Comcast’s wireline broadband, we don’t expect this trend to continue in the long run.
• If we look at the last twelve months, revenue growth for both companies is comparable with UPS’ sales growth of 0.1% vs. -0.1% for Comcast.
• Our UPS Revenue Comparison and Comcast Revenue Comparison dashboards provide more insight into the companies’ sales.
• Looking forward, Comcast’s revenue is expected to grow faster than UPS over the next three years. We expect the sales to grow at a CAGR of 7% for Comcast compared to a 6% CAGR for UPS, based on Trefis Machine Learning analysis.
• Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. UPS Is More Profitable

• UPS’ operating margin has risen from 10.5% in 2019 to 13.0% in 2022, while Comcast’s operating margin declined from 19.8% to 10.9% over this period.
• Also, looking at the last twelve month period, UPS’ operating margin of 12.5% fares better than 11.4% for Comcast.
• The decline in operating margin for Comcast can be attributed to an $8.6 billion goodwill and asset impairment related to the Sky segment.
• Our UPS Operating Income Comparison and Comcast Operating Income Comparison dashboards have more details.
• Comcast’s 22% free cash flow margin is better than 12% for UPS.
• Looking at financial risk, UPS fares better with its 14% debt as a percentage of equity significantly lower than 55% for Comcast and its 13% cash as a percentage of assets higher than 2% for the latter, implying that UPS has a better debt position and more cash cushion.

3. The Net of It All

• We see that UPS has demonstrated better revenue growth, is more profitable, and has a better debt position and cash cushion. To some extent, this also explains its slightly higher P/S multiple of 1.6x sales compared to 1.4x for Comcast.
• Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Comcast is the better choice of the two.
• Comcast is poised to expand its earnings per share driven by share repurchases and margin expansion for the cable communication business via cost and efficiency improvements. UPS’ earnings growth in the near term will likely be weighed down due to elevated costs and a likely decline in average delivery volumes, especially with a weak consumer demand environment.
• If we compare the current valuation multiples to the historical averages, Comcast fares better, with its stock currently trading at 1.4x revenues vs. the last five-year average of 1.8x. In contrast, UPS stock trades at 1.6x revenues vs. its last five-year average of 1.7x.
• Our UPS Valuation Ratios Comparison and Comcast Valuation Ratios Comparison offers more details.
• The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 30% for Comcast over this period vs. a 10% expected return for UPS, based on Trefis Machine Learning analysis – UPS vs. Comcast – which also provides more details on how we arrive at these numbers.

While CMCSA may outperform UPS in the next three years, it is helpful to see how UPS’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Merit Medical Systems vs. UPS.

Despite higher inflation and the Fed raising interest rates, UPS stock has risen 3% this year. Can it drop from here? See how low UPS stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stores in previous market crashes.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

[1] Month-to-date and year-to-date as of 7/3/2023
[2] Cumulative total returns since the end of 2016