Will UPS Deliver Rising Prices?

With shares of United Parcel Service (NYSE:UPS) trading around $86, 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 over 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.

United Parcel Service is blaming Obamacare as it says it will cut health benefits for the working spouses of 15,000 employees beginning next year. “Since the Affordable Care Act requires employers to provide affordable coverage, we believe your spouse should be covered by their own employer — just as UPS has a responsibility to offer coverage to you, our employee,” United Parcel Service said in a memo to employees seen by Bloomberg.

T = Technicals on the Stock Chart are Strong

United Parcel Service stock has been moving higher in the last several years. The stock is now consolidating near all-time high prices so it may need some time before it gets going. 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 key averages which signal neutral to bullish 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

15.22%

20%

19%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish 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 Mixed 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-1.74%

8.00%

-346.63%

-55.96%

Revenue Growth (Y-O-Y)

1.18%

2.27%

2.86%

-0.72%

Earnings Reaction

-0.11%

2.29%

-2.38%

3.03%

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

P = Average 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

Sector

Year-to-Date Return

17.73%

20.19%

21.97%

61.85%

18.07%

United Parcel Service has been an average 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 is set to cut benefits to spouses and is blaming it on Obamacare. The stock has been trending higher and is now consolidating near all-time high prices. Over the last four quarters, investors in the company have had mixed feelings as earnings have been decreasing while revenues have been rising. Relative to its peers and sector, United Parcel Service has been an average year-to-date performer. Look for United Parcel Service to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More Articles About:   , ,  

More from The Cheat Sheet