Can UPS Continue to Surge Higher?

With shares of United Parcel Service (NYSE:UPS) trading around $98, is UPS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

United Parcel Service is a package delivery company. The company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in more than 220 countries and territories. Last year, United Parcel Service delivered an average of 16.3 million pieces per day worldwide or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage, and financing. United Parcel Service operates in three segments — U.S. Domestic Package, International Package, and Supply Chain & Freight.

Brown delivered 250 of its workers a pink slip, and it’s not accepting any returns. Despite politicians urging UPS to reinstate employees who were fired after walking off a job in protest of the firing of a former co-worker, the delivery company isn’t backing down. ”Businesses and unions cannot successfully operate in an environment that allows public officials to arbitrarily choose when employees can break collective bargaining agreements or demand when employers must disregard the terms of agreements, irrespective of the officials’ motivation,” said UPS spokesman Steve Gaut. Several politicians have chimed in to show their support for the fired employees. “My message today for UPS is simple: respect your workers,” said New York City comptroller Scott Stringer, who oversees city contracts, including the one New York has with UPS. “Nobody should lose their job simply for standing up for their fellow employees, especially at a time when so many New Yorkers are struggling to make ends meet. UPS must come to the table in good faith.” Gaut said the company terminated twenty of the employees at the distribution and sorting facility in Maspeth in the Queens borough of New York after their shifts on Monday, and 230 will be removed from the payrolls once their replacements have been trained. During the February 26 stoppage, the employees left the job site for 90 minutes before returning to their posts.

T = Technicals on the Stock Chart are Strong

United Parcel Service stock has been exploding to the upside over the past several years. The stock is currently surging higher and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, United Parcel Service is trading between its rising key averages which signal neutral price action in the near-term.

UPS

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of United Parcel Service options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

United Parcel Service options

16.67%

86%

84%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on United Parcel Service’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for United Parcel Service look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

168.07%

141.67%

-1.74%

8.00%

Revenue Growth (Y-O-Y)

2.81%

3.44%

1.18%

2.27%

Earnings Reaction

0.47%

1.18%

-0.11%

2.29%

United Parcel Service has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about United Parcel Service’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has United Parcel Service stock done relative to its peers, FedEx (NYSE:FDX), Air T (NASDAQ:AIRT), Air Transport Services Group (NASDAQ:ATSG), and sector?

United Parcel Service

FedEx

Air T

Air Transport Services Group

Sector

Year-to-Date Return

-6.61%

-6.63%

-1.50%

-3.58%

-3.58%

United Parcel Service has been a poor relative performer, year-to-date.

Conclusion

United Parcel Service is a package delivery company that offers its services to consumers and companies around the world. The company delivered 250 of its workers a pink slip after protesting the firing of a former co-worker. The stock has been surging higher over the last several years and looks set to continue. Over the last four quarters, earnings and revenues have been increasing. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, United Parcel Service has been a weak year-to-date performer. Look for United Parcel Services to OUTPERFORM.

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