United Parcel Service (NYSE: UPS) shares fell sharply following the Q4 results and 2024 guidance, confirming resistance at a critical level. The technical signal is bearish and may shave another 7.5% off the stock’s price, but that may be the extent of the move. While the results and guidance were weak, continuing the trend set earlier in the year, a return to growth is at hand for this transportation stock, and the high-yield dividend is reliable.
The company’s cost-cutting efforts and move toward efficiency and modernization are paying off, driving significant bottom-line strength and setting the company up for accelerated earnings growth over the next few years. 2024 may not be as strong as the analysts had hoped due to headwinds outside United Parcel Service’s control, but interest rates will eventually come down and unleash the global economy. The question is when the FOMC will make the first cut and what may happen between then and now to impact UPS’ business.
United Parcel Service has a weak Q4 and guides the market lower for 2024
United Parcel Services' Q4 results were as expected: they continued the trend set early in 2023. That trend includes weaker-than-expected results and guidance offset by sequential margin improvement.
The $24.9 billion in revenue is up sequentially due to seasonal strength but down 7.8% compared to last year. The revenue missed the consensus by 170 basis points due to weakness in all segments. The US Domestic segment fell % 7.3on a 7.4% decline in volume offset by price hikes. International fell by 6.1% on an 8.3% contraction in volume, and Supply Chain Solutions fell by 11.4%.
Margin news is mixed. The margin is stronger than expected but still down significantly compared to last year. The adjusted consolidated operating margin rose to 11.2% in Q4, compared to 10% for the year, leaving the adjusted earnings aligned with the Marketbeat.com analyst consensus target. Still, it is down almost 32% YOY, with only marginal strength expected in 2024.
Guidance is what led the market to fall 7% in premarket trading. The company guided 2024 to growth but significantly below the analysts' forecasts. The margin is expected to improve modestly compared to last year but will contract compared to Q4. The takeaway is that analysts are resetting their expectations for the company and will continue to provide a headwind for the market over the next quarter or two.
Analysts' hopes dashed by UPS guidance
The trend in analysts sentiment was bearish in 2023 but began to brighten in 2024. The stock received two boosted price targets from prominent firms that rated it a Buy the week before the Q4 report was released. However, the trend in sentiment remains bearish and is unlikely to change now that guidance is in.
At best, the analyst will reaffirm targets, which suggests a floor for the market is in play. The low end of the analysts' range is $155, putting the market in deep value territory with its post-release plunge. The consensus assumes about 20% upside from this level, but there is a risk that the low end and consensus will continue to trend lower in 2024.
The technical outlook: UPS stock dips, lower prices are yet to come
The technical picture is fairly bearish for UPS stock. The market rebounded in 2023 but hit a ceiling that is now confirmed as significant resistance. The move lower is compounded by a solid stochastic sell signal that suggests a move to the latest lows is possible.
The risk is that the stock will fall through that level this year and extend the trend to new lows. One possible catalyst is the analysts, another is the Q1 results, and another is the value. UPS stock has a high yield at over 4.15%, but the valuation is also relatively high, which is another reason the stock may have trouble gaining traction in the year’s first half.
