Is UPS Well-Positioned for the Future?

With shares of United Parcel Service (NYSE:UPS) trading around $99, 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 on Friday warned it would miss its fourth quarter earnings targets, blaming an “unprecedented” rise in online holiday shopping, a shortened holiday season and bad weather despite “extraordinary measures” to meet Christmas demand. This will be the second time the Atlanta-based package and delivery concern has missed its quarterly earnings targets.

T = Technicals on the Stock Chart Are Mixed

United Parcel Service stock has been exploding to the upside since the Financial Crisis. However, the stock is currently pulling back and may need time to stabilize before heading higher. 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

18.19%

83%

80%

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

February Options

Average

Average

March 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 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

141.67%

-1.74%

8.00%

-346.63%

Revenue Growth (Y-O-Y)

3.44%

1.18%

2.27%

2.86%

Earnings Reaction

1.18%

-0.11%

2.29%

-2.38%

United Parcel Service has seen mixed earnings and increasing 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 = 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 Services Group

Sector

Year-to-Date Return

-5.89%

-1.95%

-1.42%

-9.02%

-5.57%

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 on Friday warned it would miss its fourth-quarter earnings targets. The stock has been surging higher over the last several years, but is now pulling back. Over the last four quarters, earnings have been mixed while revenues have been increasing which has produced conflicting feelings among investors about recent earnings announcements. Relative to its peers and sector, United Parcel Service has been an average year-to-date performer. WAIT AND SEE what United Parcel Services does this quarter.

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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