While the novel coronavirus pandemic took a toll on the transportation sector, it actually boosted the e-commerce market. United Parcel Service (NYSE:UPS) is entrenched in both of those sectors. As a result, UPS stock has faced both headwinds and tailwinds during the first half of 2020.
Not everyone thinks of UPS as an e-commerce stock, but that’s a key component of the company’s business model now. Some folks just think of it as a dividend stock, and that’s fine. After all, UPS offers a forward annual dividend yield of 3.53%, which is nothing to sneeze at.
Value investors should also look at UPS stock in a favorable light as it sports a very reasonable trailing 12-month price-to-earnings ratio of 23.17. Yet, it’s important to look at the full picture and not just one angle. The technical and fundamental aspects should be weighed before considering a position in UPS.
UPS Stock at a Glance
We’ll start with the technical features of UPS. At the moment, the price action looks overwhelmingly positive. Prior to the onset of the coronavirus, UPS was trading in a fairly tight range between $110 and $125.
As Covid-19 impacted the transportation industry and the economy in general, the price of UPS stock tumbled to the $86 area. Then a gradual comeback began as UPS twisted and turned but recovered from one little dip after another.
By early July, UPS sat at the $114 level, thereby putting it back into the pre-crisis range. The bulls can now have renewed hope for a breakout. With the next earnings report scheduled for July 30, they might just get the catalyst they’ve been looking for.
Online Commerce to the Rescue
The coronavirus has changed practically everything, including the way people shop. Lockdowns and social distancing have cleared the runway for a surge in online shopping activity which, in turn, has kept package-delivery companies like UPS and FedEx (NYSE:FDX) very busy.
Data from ACI Worldwide indicates that e-commerce sales in May increased by 81% on a year-over-year basis. Thus, even while the pandemic weighed heavily on the transportation sector, the ascent of e-commerce has helped UPS pick up the slack.
Will the benefits of the spike in e-commerce activity be reflected in the UPS share price in late July, when the company releases its earnings data? That’s certainly a possibility, and FedEx’s recent positive earnings surprise may provide an idea of how UPS’s upcoming results might turn out.
The data indicates that FedEx’s fiscal fourth-quarter earnings blew Wall Street’s expectations out of the water. The company’s $2.53 per share easily outdid the consensus earnings estimate of $1.58 per share. Moreover, FedEx’s Ground unit posted $6.394 billion in quarterly revenues, signifying a 20% year-over-year improvement.
Grabbing Market Share
Of course, not everyone will view FedEx’s success as bullish for UPS. The two companies are direct competitors, so UPS investors aren’t necessarily rooting for FedEx.
However, the pandemic-induced e-commerce explosion has created a tidal wave of online orders. The demand for package deliveries might be more than even a large company like FedEx can handle.
In fact, it has been reported that an account representative at FedEx Services noted a “backlog” and a “lack of equipment” at the company’s hub in Rialto, California. It is possible that FedEx is overwhelmed with more orders than it can handle in a timely manner?
At one point, FedEx reportedly placed limits on the number of packages that customers of FedEx Ground could send. This suggests that UPS might be able to fill the gap as FedEx may be struggling to fulfill all of its incoming orders.
ShipSights CEO Chase Flashman stated outright that UPS is “going to gain some market share” and that it “won’t be a short-term shift.” That could actually benefit both companies if FedEx is indeed overwhelmed with package-delivery orders.
The Final Word
Some investors like the dividend payouts while others appreciate the strong value proposition that UPS stock presents. Even beyond those considerations, UPS deserves investors’ attention as the company should continue to thrive in an economic climate that favors e-commerce.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.