High-Flying United Parcel Service Is Still A Value After Earnings Pop

United Parcel Service Guides Higher, Ups Dividend 

United Parcel Service NYSE: UPS Q4 results and 2022 guidance are what you get when you combine internal operational efficiency, high demand, and pricing increases. The company’s efforts and business resulted in not only strong results but so strong the board authorized an abnormal dividend increase. We say abnormal because a 50% increase is not typically expected, even from high-quality dividend growers like United Parcel Service. The key takeaway here is that there is a reason for shares to be up so strongly and that, with the outlook the way it is, we are expecting to see this stock trend higher over the course of the year. 

United Parcel Service Beats On All Metrics 

United Parcel Service reported a strong quarter driven by both rising demand and higher prices. The company reported $27.77 billion in net revenue for a gain of 11.5% over last year and beat the consensus estimate by 260 basis points. The gain was supported by revenue increases in both the domestic and international segments with only one negative to be noted. The company reported a 12.4% increase in domestic revenue underpinned by a 10.5% increase in pricing while the international segment grew a stronger 13.1% but entirely due to pricing. Pricing in the international segment increased by 16.4% and may be dampening demand from overseas shippers. 

Moving down the report, the company experienced wider margins on both a GAAP and adjusted basis. The company reports GAAP operating profit is up 91% from last year with adjusted up a smaller but still robust 37% which outpaces revenue growth by a wide margin. On the bottom line, the GAAP $3.52 reverses a loss posted in the previous year while the adjusted $3.59 is up 35% from last year and beat the consensus by $0.49. 

Looking forward, the company is expecting revenue strength and margin expansion in fiscal 2022. The company did not give specific guidance for earnings but is forecasting $102 billion in revenue versus the $99.92 Marketbeat.com consensus estimate and for an adjusted operating margin of 13.7%. This is up 150 basis points from the Q4 level and should drive outsized growth relative to the 4.9% YOY growth forecast for revenue. The key takeaway here is that revenue, margin, and earnings are strong and more than capable of supporting the dividend increase. 

United Parcel Service Ups The Dividend 50% 

United Parcel Service was a very high-quality dividend grower before its distribution increase and now it is a high-yielding and high-quality dividend payer with a yield of 2.65% relative to the 2.0% it paid just yesterday. The payout is a bigger chunk of earnings but still just 50% of the consensus estimate for 2022 earnings and we know that estimate is too low. In our view, investors shouldn’t hold their breath for another mega increase such as what we just received but future dividend increases are still in the picture. Until then, we expect to see shares of UPS trend higher until the yield comes back down toward 2.0%. That would put the stock in the range of $304 or about 30% above the current levels. 

The Technical Outlook: UPS Breaks Out To New Highs 

Shares of UPS are up more than 13% in early action and are trading at a new all-time high. The high is supported by fundamentals and outlook so we think it will stick. Assuming it does, the indicators are consistent with a move higher that could last for several days if not for the next few weeks. The analysts have yet to say anything about the results but we think the notes are coming. When they do we expect to see upgrades and price target increases and that will drive share prices higher.