4) United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 43
United Parcel Service, Inc. (NYSE:UPS) is a package delivery company that provides services such as transportation and delivery, distribution, contract logistics, ocean freight, and airfreight, among others. The company’s integrated delivery and logistics business model leverages its network to offer end-to-end solutions, managing the entire logistics process, such as transportation, warehousing, and distribution. By integrating advanced technology and leveraging both owned and crowdsourced assets, the company offers flexible, efficient, and scalable transportation solutions.
United Parcel Service, Inc. (NYSE:UPS)’s strategic focus on expanding its market share among small and medium-sized businesses (SMBs) provides a significant opportunity for future revenue growth. By reducing its reliance on large enterprise customers, the company is expected to create a higher-margin revenue stream. This is because SMBs often need more comprehensive logistics solutions, including value-added services that can command premium pricing.
Analysts view that United Parcel Service, Inc. (NYSE:UPS)’s emphasis on SMB business comes at a time when many such businesses are rapidly expanding their online presence. This should help create increased demand for shipping services that United Parcel Service, Inc. (NYSE:UPS) is well-positioned to capture. The company’s focus was further bolstered by its investments in digital platforms and tools tailored for SMBs. These can create stronger customer relationships and increase switching costs, leading to higher customer retention and lifetime value.
As United Parcel Service, Inc. (NYSE:UPS) becomes a trusted partner for SMBs, it will have an opportunity to leverage these relationships to sell additional services across its portfolio, including international shipping and supply chain solutions.
Artisan Partners, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“We made no new purchases in Q3. Instead, our purchase activity was focused on adding to a few of our existing names that remain cheap, such as Dollar General and United Parcel Service, Inc. (NYSE:UPS). When we initiated our position in UPS in late 2023, shares were under pressure due to concerns about its new labor contract diverting volumes and driving up costs, as well as the continued normalization of volumes following COVID-related gains. We welcomed the market’s short-term focus as it provided us an opportunity to purchase UPS at an undemanding valuation of less than 11X our view of normalized earnings. UPS is a good transport operation that easily earns its cost of capital, generates significant free cash, has a wide economic moat, has a strong financial profile and pays an attractive dividend—now yielding 4.8%. More recently, the stock has been weak because profits came in weaker than expected. UPS’ customers traded down to the lower yielding ground segment, which negatively impacted overall pricing and margins. These shifts are common and occur in both directions, but what is important, in our view, is the long-term trend of volume growth remains intact. Nevertheless, investors have lost patience with UPS after a string of earnings disappointments.”
