Did United Parcel Service, Inc. (UPS) Exceed Expectations in Q1?

We recently compiled a list of the 10 Best Logistics Stocks to Buy Now. In this article, we are going to take a look at where United Parcel Service, Inc. (NYSE:UPS) stands against the other logistics stocks. You can also check out the 20 Biggest Logistics Companies in the US here.

The logistics industry is experiencing major developments, which bring both risks and opportunities. These changes are being driven by new technology, more competitors, changing customer expectations, and new business models. The global logistics market was valued at nearly $2.6 trillion in 2022. The market is projected to grow to $4.5 trillion by 2027, expanding at a compound annual growth rate of 11.5%.

Meanwhile, the US Freight and Logistics Market is predicted to reach a value of $1.67 trillion by 2030. The domestic market is seeing expansion due to an increase in e-commerce trade within the country. The e-commerce sector saw a growth of over 14% year-over-year in 2023 to reach $925 billion. The number of e-commerce users is predicted to increase from 264.5 million in 2021 to 289.9 million by 2027. There is rising demand for logistical services particularly among online retailers that do not operate physical stores and rely heavily on third-party warehousing.

Technology is reshaping how logistics companies function. Those who succeed will be the ones who can effectively use new technologies like data analytics and platform solutions. Data analytics is considered significantly more important in the transportation and logistics (T&L) sector over the next five years compared to other industries. Around 90% of experts in T&L prioritize these aspects, higher than the average of 83% seen across other sectors.

The potential for growth is high, yet the logistics industry has been slow to capitalize on it. According to a report by PWC, only 28% of T&L companies consider themselves 'advanced' in digitization. In comparison, 41% of automotive companies and 45% of electronics companies already view themselves as advanced. The main hurdle for transportation and logistics firms lies in developing a 'digital culture' and providing good training.

The majority of newcomers in the logistics sector are startups, and many of them aim to use new technology to establish their presence in the industry. So far, most of these startups operate in asset-light segments of the value chain, such as virtual freight forwarding. Private equity flows in digital logistics startups since 2011 have surpassed $150 million, whereas funding from legacy logistics companies is less than $10 million.

Our Methodology

To shortlist the best logistics stocks, we relied on Insider Monkey’s database of 920 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the logistics stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A warehouse filled with boxes of parcels, symbolizing the companies reliable logistics services.

United Parcel Service, Inc. (NYSE:UPS)

Number of Hedge Fund Holders: 43

Value of Hedge Fund Holdings: $969,765,000

United Parcel Service, Inc. (NYSE:UPS) is a multinational shipping and supply chain management company. It is also among the world's largest parcel delivery companies with 500+ planes and 100,000+ vehicles.

The company delivers an average of 22 million packages per day, with 64% of its revenue coming from domestic packages and 20% from international operations. By the end of the fiscal year 2023, United Parcel Service, Inc. (NYSE:UPS) achieved a return on assets (ttm) of 7.99% and a return on equity (ttm) of 32.04%.

In the first quarter of 2024, United Parcel Service, Inc. (NYSE:UPS) reported an EPS of $1.43, exceeding the estimated $1.34. The company has outperformed EPS estimates for the past three consecutive quarters.

The stock has an average 12-month price target of $160.7, suggesting an upside potential of over 17% from the current price levels. Overall, 43 hedge funds hold a stake in the company as of Q1 2024.

Here’s what Artisan Partners said about United Parcel Service, Inc. (NYSE:UPS) in its Q1 2024 investor letter:

“United Parcel Service, Inc. (NYSE:UPS) was a Q4 2023 purchase. When we initiated our position, shares were under pressure due to concerns about its new labor contract diverting volumes and driving up costs, as well as the continued normalization of volumes following COVID-related gains. The stock moved higher after we purchased it but gave up those gains in January when the company reported weaker-than-expected shipping volumes and a decline in revenue in the prior quarter. Despite the long-term growth tailwinds from the secular shift toward e-commerce, the shipping business is still cyclical, so disappointments will happen. However, we welcomed the market’s short-term focus as it provided us an opportunity to purchase UPS at an undemanding valuation of less than 11X our view of normalized earnings. UPS is a good transport operation that easily earns its cost of capital, generates significant free cash, has a wide economic moat, has a strong financial profile and pays an attractive dividend yielding 4%. With the new 5-year labor agreement completed, we believe UPS can focus on regaining lost volume and improving its cost structure.”

Overall UPS ranks 6th on our list of the best logistics stocks to buy. You can visit 10 Best Logistics Stocks to Buy Now to see the other logistics stocks that are on hedge funds’ radar. While we acknowledge the potential of UPS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than UPS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.