Can UPS Post Higher Prices?

With shares of United Parcel Service (NYSE:UPS) trading around $90, 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’s labor union woes still haven’t been resolved, according to the Wall Street Journal, and the shipping company is under pressure as the busy holiday season approaches. Teamsters-represented employees rejected two out of seven riders to their contract. The contract supplements that were rejected have to do with overtime pay, wages for part-time employees, and health-care. The Wall Street Journal said that UPS still has “a lot more work to do” before each rider on the contract that was approved in June is negotiated and UPS can move forward without the danger of potential labor disputes.

T = Technicals on the Stock Chart Are Strong

United Parcel Service stock has been exploding to the upside since the Financial Crisis. The stock is currently trading near all time high prices and looks ready to test them again. 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 above its rising 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

19.22%

80%

77%

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

October Options

Flat

Average

November 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 very significant 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 increasing revenue figures over the last four quarters. From these numbers, the markets have been mixed 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

AirT

Air Transport Services Group

Sector

Year-to-Date Return

22.81%

25.93%

29.89%

83.54%

39.25%

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. Labor union problems have still not been resolved which may be a problem during the upcoming holiday season. The stock has been surging higher over the last several years and is now trading slightly below all time high prices. Over the last four quarters, earnings have been decreasing while revenues have been increasing which has produced mixed feelings among investors about recent earnings announcements. Relative to its peers and sector, United Parcel Service has been a weak year-to-date performer. WAIT AND SEE what United Parcel Services reports during its upcoming earnings release.

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.

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