United Parcel Service (NYSE: UPS) is scheduled to report its Q1 2021 results on Tuesday, April 27. We expect UPS to likely post revenue and earnings above the street expectations, due to higher demand for residential deliveries. That said, given that several offices remain shut or working with a limited capacity, the business deliveries will likely see continued headwinds. An overall rebound in economic activities likely boded well for the company’s freight forwarding as well as international outbound business. We expect the company to navigate well based on these trends over the latest quarter.
Our forecast indicates that UPS’ valuation is around $185 per share, which is 4% above the current market price of around $178. Our interactive dashboard analysis on United Parcel Service Pre-Earnings has additional details.
(1) Revenues expected to be slightly above the consensus estimates
Trefis estimates UPS’ Q1 2021 revenues to be around $20.8 Bil, 1.5% above the $20.5 Bil consensus estimate. The gradual opening up of economies and vaccination programs in the U.S. has resulted in a pickup in economic activities, and this should bode well for the overall deliveries. E-commerce growth remains the important driver for UPS’ near term growth, and this will likely be visible in terms of higher revenues for the company’s U.S. Domestic Package segment in Q1. Looking back at Q4 2020, revenues grew 21% y-o-y to $24.9 Bil, with 17% gains for U.S. Domestic Package, 27% for International Package, and 29% for Supply Chain & Freight segment. Our dashboard on United Parcel Service Revenues offers more details on the company’s segments.
2) EPS also likely to be above the consensus estimates
UPS’ Q1 2021 adjusted earnings per share is expected to be $1.85 per Trefis analysis, 8% above the consensus estimate of $1.72. UPS’ net income of $2.3 billion in Q4 2020 reflected a 26% rise from its $1.8 billion figure in the prior-year quarter. This can be attributed to higher revenues and improved margins. UPS will likely see further margin expansion led by an increase in volume of residential deliveries, bolstering its earnings growth in the near term. For the full-year 2021, we expect the EPS to be $9.05 compared to $8.23 in 2020.
(3) Stock price estimate slightly above the current market price
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Going by our United Parcel Service’s Valuation, with an adjusted EPS estimate of around $9.05 and a P/E multiple of around 20x in 2021, this translates into a price of $185, which is slightly above the current market price of around $178. The P/E multiple of 20x for UPS is in-line with the levels seen in late 2020.
Although the continued challenges in the business deliveries will have some impact on UPS’ overall revenue growth rate in 2021, we believe the demand for the residential deliveries, fright forwarding, and international package will see strong growth in the near term, driven by growth in e-commerce and the resumption of economic activities.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While UPS stock may have some more room for growth, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Canadian Pacific Railway vs. D R Horton.