Is Ups A Good Stock To Buy
It's been a somewhat confusing year for UPS (UPS 1.99%) investors. As I write, the stock is down 16.4% for the year and has slightly underperformed the S&P 500 index. However, this comes in a year when the company pulled its 2023 guidance forward by a year on its fourth-quarter 2021 earnings in early February. Moreover, despite facing headwinds in the first quarter, management reaffirmed its full-year 2022 guidance in April. So what's going on, and is the stock a good value now?
is ups a good stock to buy
First, the company is still on track to get to its 2023 targets a year early, but its valuation is a lot less due to the fall in the stock price. Based on the Wall Street analyst consensus estimate of $12.75 in earnings per share for 2022, at a price of $174, UPS trades on less than 14 times forward earnings. Meanwhile, the stock yields a handsome 3.5%.
The reasons for the volume shortfalls will hopefully prove temporary for the transportation stock, and in any case, UPS is offsetting them with price increases. However, if the prices stick and volume growth comes back, it could lead to UPS upgrading earnings estimates later in the year. That said, economic growth is slowing, and there's no shortage of geopolitical risk to the economy right now. So it's probably safer to assume UPS will stand still on its earnings guidance in 2022, and on a forward P/E ratio of fewer than 14 times, that's good enough for most investors.
Macroeconomic headwinds are gathering, but the underlying quality of UPS (UPS 1.99%) earnings is improving. That's the key takeaway from the package delivery giant's recent third-quarter earnings report. So does it add up to make the stock a buy? Let's take a look.
It all adds up to an uncertain environment, and the bull and bear debate around the stock continues. It doesn't help UPS that the international package segment is its highest margin business, with an adjusted operating margin of 20.9% in the quarter compared to the U.S. domestic package segment adjusted operating profit margin of 11%. Consequently, investors should brace themselves for some potential disappointment in Q4.
UPS is improving its underlying earnings quality, and the margin progression in the U.S. domestic package segment is impressive. That said, there's little the company can do about the economy, and the international package segment will face challenges. Nevertheless, if you're willing to ride out some potentially bad news, UPS is an attractive stock to buy, and that's likely to remain the case as long as the company demonstrates success with its transformational strategies.
With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Our analysis shows 2 warning signs for United Parcel Service (1 can't be ignored!) and we strongly recommend you look at these before investing.
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The Style Scores are a complementary set of indicators to use alongside the Zacks Rank. It allows the user to better focus on the stocks that are the best fit for his or her personal trading style.
Within each Score, stocks are graded into five groups: A, B, C, D and F. As you might remember from your school days, an A, is better than a B; a B is better than a C; a C is better than a D; and a D is better than an F.
As an investor, you want to buy stocks with the highest probability of success. That means you want to buy stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Score of an A or a B in your personal trading style.
Zacks' proprietary data indicates that United Parcel Service, Inc. is currently rated as a Zacks Rank 3 and we are expecting an inline return from the UPS shares relative to the market in the next few months. In addition, United Parcel Service, Inc. has a VGM Score of C (this is a weighted average of the individual Style Scores which allow you to focus on the stocks that best fit your personal trading style). Valuation metrics show that United Parcel Service, Inc. may be fairly valued. Its Value Score of C indicates it would be a neutral pick for value investors. The financial health and growth prospects of UPS, demonstrate its potential to perform inline with the market. It currently has a Growth Score of B. Recent price changes and earnings estimate revisions indicate this would not be a good stock for momentum investors with a Momentum Score of F.
The ever popular one-page Snapshot reports are generated for virtually every single Zacks Ranked stock. It's packed with all of the company's key stats and salient decision making information. Including the Zacks Rank, Zacks Industry Rank, Style Scores, the Price, Consensus & Surprise chart, graphical estimate analysis and how a stocks stacks up to its peers.
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The Value Scorecard identifies the stocks most likely to outperform based on its valuation metrics. This list of both classic and unconventional valuation items helps separate which stocks are overvalued, rightly lowly valued, and temporarily undervalued which are poised to move higher.
The Momentum Scorecard focuses on price and earnings momentum and indicates when the timing is right to enter a stock. The analyzed items go beyond simple trend analysis. The tested combination of price performance, and earnings momentum (both actual and estimate revisions), creates a powerful timeliness indicator to help you identify stocks on the move so you know when to get in and when to get out.
The X Industry (aka Expanded Industry) is a subset of the M (Medium Sized) Industry, which is a subset of the larger Sector category, which is used to classify all of the stocks in the Zacks Universe. The Zacks database contains over 10,000 stocks. All of those stocks are classified into three groups: Sector, M Industry and X Industry. There are 17 Sectors, 60 different M Industries, and 265 X Industries.
For example, a regional bank would be classified in the Finance Sector. Within the Finance Sector, it would fall into the M Industry of Banks & Thrifts. And within the M Industry, it might further be delineated into the X Industry group called Banks Northeast. This allows the investor to be as broad or as specific as they want to be when selecting stocks.
The X Industry values displayed in this column are the median values for all of the stocks within their respective industry. When evaluating a stock, it can be useful to compare it to its industry as a point of reference. Moreover, when comparing stocks in different industries, it can become even more important to look at the relative measures, since different stocks in different industries have different values that are considered normal.
Like the earnings yield, which shows the anticipated yield (or return) on a stock based on the earnings and the price paid, the cash yield does the same, but with cash being the numerator instead of earnings. For example, a cash/price ratio, or cash yield, of .08 suggests an 8% return or 8 cents for every $1 of investment.
Enterprise Value / Earnings Before Interest, Taxes, Depreciation and Amortization is a valuation metric used to measure a company's value and is helpful in comparing one stock to another.
Conventional wisdom says that a PEG ratio of 1 or less is considered good (at par or undervalued to its growth rate). A value greater than 1, in general, is not as good (overvalued to its growth rate). For example, a company with a P/E ratio of 25 and a growth rate of 20% would have a PEG ratio of 1.25 (25 / 20 = 1.25). A company with a P/E ratio of 40 and a growth rate of 50% would have a PEG ratio of 0.80 (40 / 50 = 0.80). Traditionally, investors would look at the stock with the lower P/E and deem it a bargain. But when compared to its growth rate, it does't have the earnings growth to justify its P/E. In this example, the one with the P/E of 40 is the better bargain because it is selling at a discount to its growth rate. So the PEG ratio tells you what you're paying for each unit of earnings growth.
The Price to Book ratio or P/B is calculated as market capitalization divided by its book value. (Book value is defined as total assets minus liabilities, preferred stocks, and intangible assets.) In short, this is how much a company is worth. Investors use this metric to determine how a company's stock price stacks up to its intrinsic value.
A P/B of 1 means it's selling at its per share book value. A P/B of 2 means it's selling at 2 times its book value. A P/B of 0.5 means its selling at half its book value. Note; companies will typically sell for more than their book value in much the same way that a company will sell at a multiple of its earnings. The median P/B ratio for stocks in the S&P is just over 3. While a P/B of less than 3 would mean it's trading at a discount to the market, different industries have different median P/B values. So, as with other valuation metrics, it's a good idea to compare it to its relevant industry. 041b061a72