On Feb 26, 2014, we issued anupdated research report on United Parcel Service, Inc. (UPS). While the company’s top line missed the Zacks Consensus Estimate, the bottom line was in line with our expectation.
UPS delivered positive to neutral earnings surprise in the last four quarters, with an average surprise of 2.97%. Currently, the Zacks Consensus Estimate for the first quarter earnings is pegged at $1.12 per share, representing a 7.63% annualized growth.
For 2014, UPS expects earnings per share to range from $5.05 to $5.30, up 11% to 16% over 2013 buoyed by gradually recovering economy as the U.S. GDP is expected to grow 2.7%.
Eurozone GDP is expected to grow 1.2% from 2013. In addition, the Asian economy is expected to exhibit solid growth with China likely to grow 7.5%. In addition, global exports are projected to slightly outpace global GDP, which is also likely to benefit UPS.
Going forward, UPS is also banking upon recent developments in WTO Trade Facilitation Agreement, which seeks to simplify global supply chain.
We believe the company’s optimism underpins its strength with respect to its market position that rivals the likes of FedEx Corp. (FDX) and Radiant Logistics, Inc. (RLGT), and its ability to safeguard shareholders’ value despite unfavorable market dynamics. The company’s financial strength drives growth through planned investments, technology-backed operations and enhanced worldwide network.
However, we keep in mind the company’s cautious outlook for the first quarter results. UPS expects earnings per share growth of below 10%, due to the higher tax rate and disruption in supply chain and freight segment due to weakness in freight forwarding business. The company expects tax rate to increase year over year to 36% in 2014.
In addition, the company expects International revenue to improve at slower pace in 2014 as non-premium export products continue to offset growth. Supply Chain and Freight segment revenues and profits are also expected to be flat year over year in 2014 due to impediments in the international airfreight business.
Growth in domestic package is expected to be offset by higher health care costs. In addition, investment in network improvement will result in cost escalation of over $100 million in 2014.
Currently, UPS has a Zacks Rank #4 (Sell).
Stocks That Warrant a Look
Better-ranked stocks in this sector include Zacks Rank #1 (Strong Buy) Avianca Holdings S.A. (AVH).
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