Is UPS Stock a Buy for 2021?

The package delivery and supply chain management company United Parcel Service, Inc. (UPS) has been seeing  increased demand for residential deliveries due to the impact of increased online shopping, among other factors.

UPS  stock has gained 83.8% since hitting its 52-week low of $82 and closed yesterday’s trading session at $161.75.

The company’s impressive performance over the past couple of months has also been driven by its COVID-19 vaccine deliveries. According to Carol Tome, UPS CEO, , the company has so far delivered approximately  36.5 million vaccines.

Here is why we think UPS could maintain its momentum:

A Thriving E-Commerce Sector

E-commerce companies fared better than companies in many other sectors amid the COVID-19 pandemic thanks to their pandemic-ready business models. With people depending more on online platforms to shop , many offline retailers have also now focused on their online presence. These factors have proved to be a boon for  UPS because retailers, unable to handle the pressure on their delivery systems, have turned  to UPS to  deliver their  online-ordered products.

As the e-commerce trend is likely to stay because of its convenience and the shift in consumers’ buying patterns, UPS should gain steadily in the upcoming months.

Attractive Dividend

This month, UPS announced its regular quarterly dividend of $1.02 per share payable on March 10, 2021. The stock has consistently paid  dividends each quarter for more than two decades. The company’s three-year and five-year divided CAGRs stand at 6% and 6.4%, respectively. While the four-year average dividend yield for UPS is 3.2%, the current dividend translates to a 2.5% yield.

Growth Across All Segments

For the fourth quarter ended December 31, 2020, the company’s top line climbed more than 21% year-over-year to $24.90 billion. Its revenue from its  U.S. Domestic Package segment increased 17.4% year-over-year to $15.74 billion over the same period, driven by growth from small- and medium-sized businesses.

Its  revenue from its International Package segment was reported at $4.77 billion, up 26.8% year-over-year because of export growth from all regions. The revenue from its  Supply Chain and Freight segments increased 29% year-over-year thanks to strong market demand in nearly all businesses including freight forwarding out of Asia and UPS Healthcare.

Expected Revenue and Earnings Growth

Analysts expect the company’s revenue to increase 14.2% for the quarter ending March 31, 2021. Its EPS is expected to grow 48.7% in the same quarter, 8.1% in fiscal 2021 and at a rate of 10.1% per annum over the next five years.

Consensus Price Target Indicates Upside

Wall Street analysts expect the stock to hit  $175.92 in the near term, which indicates a potential upside of 7.7%.

Favorable POWR Ratings

UPS has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. The stock has a B grade for Quality, which is  in sync with its impressive gross profit margin of 38.7%.

UPS has a B grade or Sentiment also, , consistent with analysts’ expectations that its revenue and EPS will increase in the upcoming months.

The stock is also graded for Momentum, Stability, Growth and Value. Get all of UPS’ ratings here.

The stock is ranked #6 of 16 stocks in the A-rated Air Freight & Shipping Services industry.

There are several other top-rated stocks in the same industry, click here to access them.

Bottom Line

UPS is expected to thrive this year and beyond because  the online sales of goods are on the rise. Moreover, UPS’ diversified business is expected to be the driving force behind the company’s growth.

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UPS shares were trading at $161.04 per share on Wednesday afternoon, down $0.71 (-0.44%). Year-to-date, UPS has declined -4.37%, versus a 4.85% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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