United Parcel Service, Inc. (NYSE:UPS): A Bearish Investment Perspective

We came across a bearish thesis on United Parcel Service, Inc. (NYSE:UPS) on ValueInvestorsClub by natey1015. In this article, we will summarize the bears’ thesis on UPS. The company’s shares were trading at $134.82 when this thesis was published, vs. the closing price of $121.62 on Mar 07.

A warehouse filled with boxes of parcels, symbolizing the companies reliable logistics services.

UPS, a package delivery and logistics provider, offers transportation and delivery services. It operates through two segments, U.S. Domestic Package and International Package.

UPS faces tough competition from Amazon’s in-house delivery system. In 2023, 40% of UPS’ operating profit came from Amazon. The company is used as a shipping intermediary for returns while Amazon uses its in-house delivery system to deliver packages to customers. If Amazon uses its own delivery system for returns, it could create a dent in the financials of UPS. If Amazon keeps increasing its share in the retail space, it will hurt the inbound shipping revenue that UPS managers for other sellers.

Another pain point for UPS is its labor cost. Since the workforce is highly unionized, managing operating costs has been challenging. In the first nine months of 2024, compensation benefits as a proportion to revenue increased by 160 basis points while revenue declined by 0.6%. The high single-digit growth in its e-commerce business has provided some hope for business growth but the challenges discussed should outweigh the positive impact of e-commerce expansion.

The market expects revenue, operating profit and EPS to grow by 10.5%, 13.2% and 15.3%, respectively but these numbers look very optimistic. Considering the growth rate from 2019, the figures for these three measures have been 4.4%, 1.6% and 5.6%. UPS trades at 18x its trailing 12-month EPS, close to Google’s multiple of 21x. This seems irrational given Google’s superior growth rate and a net cash position. While the streets expect an EPS of $10 in 2026, $7.50 is a more reasonable assumption. A multiple of 11x would be justified due to its no/low growth, offering a 33% downside from its current price.

While we acknowledge the potential of UPS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.