UPS (NYSE:UPS) hit a 52-week high yesterday, and it's easy to think that that's the top of the growth pattern at UPS. The 10.4% gain yesterday kept right on going into today's trading, and there's every sign that those gains can keep right on going.
Small Business Leads the Way for UPS Stock
UPS stock price gains were fueled by substantial growth in the small business sector, with the company posting quarterly revenue of $22.91 billion. That's up 27% on the same quarter the previous year, and handily beat estimates. On a per-share basis, the company turned in $2.77 in adjusted earnings, which readily beat Bloomberg estimates of $1.73 per share and Zacks estimates of $1.67.
UPS has trained its focus on a “bigger not better” strategy, focusing on delivering better quality service as opposed to expanding its operations to focus on taking in all the shipping business it can. This has resulted in larger retailers—who tend to be less profitable—taking a back seat at UPS while healthcare deliveries, and smaller business deliveries, take a more prominent place. The end result is an increased per-package revenue rate—up 10% for both US and international shipping—which means the company can make more without costly expansions.
Better yet, conditions on the ground contributed to big gains for UPS share price as well. With airline flights dropping, and consumers increasingly taking advantage of e-commerce for more of their shopping, that allowed UPS to raise some of its prices and improve its margins accordingly. A government-connected contract that sees UPS handling Covid-19 vaccine supplies also helps ensure a revenue stream for at least the short-term.
Do Analysts Believe UPS' Gains Can Continue?
Here's the best news for anyone wondering if UPS has reached its top in terms of pricing: financial analysts don't believe that's the case at all. With UPS currently trading at $197.35 as of this writing, and earlier today establishing a new 52-week high of $198.25, some might think there's no further room to grow. Our latest research makes it clear: UPS can grow even beyond its 52-week high.
While the average price target currently sits at $166.75, the current high target—held at Credit Suisse—is $261. Eight separate analysts have raised their price targets just today, and of them, seven targets are actually higher than UPS' current scale. Six of the eight have raised their targets over $200, including Credit Suisse.
Overall, the trend in terms of analyst assessment has been bullish, though there have been some setbacks along the way. A year ago, the company had two “strong buy” ratings, along with 13 “buy”, six “hold” and three “sell” ratings. Today, we have only one “strong buy”, but we also have 13 “buy”, nine “hold”” and just one “sell”, suggesting that some of the highest enthusiasm has boiled off, but a lot of the sell-side pressure has also vacated the ratings.
Is UPS Likely to Lose Value Soon?
Simply put, UPS is likely to hold its value and carry on for some time to come. There's too much working in UPS' favor for that not to happen. The company has already improved its margins substantially, and making more money on each shipment that goes out the door ensures better profitability for the same amount of input.
Sure, there are some potential issues afoot that may hamper gains for UPS from here. FedEx (NYSE:FDX) recently saw its own gains as part of a halo effect, of sorts, from UPS' gains. Plus, FedEx's recent deal with Adobe (NASDAQ:ADBE) will give it some competitive advantages as FedEx puts ShopRunner together with Adobe Commerce and increases the chances that businesses—even small businesses like the kind UPS won over so hard—will turn to FedEx for deliveries instead. Then, of course, there's always the US Postal Service, which has long been a favorite with the smallest of businesses since it has an office in virtually every town. Convenience, for small businesses, is not a small consideration. It saves money and opens up the chance to do more at the same time, which makes for a better business.
However, UPS has won a lot of hearts so far. Small businesses tend to stick with proven winners; branching out unexpectedly may ultimately produce setbacks that cost time and money to address. Even if UPS loses some of its small business trade to FedEx and the USPS, it's still likely to continue its winning strategy. That makes UPS well worth considering in adding to your portfolio.
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