UPS Stock Is Ready To Pop

UPS Delivers eCommerce Gains

 The chart of UPS (NYSE:UPS) looks like a stock about to pop. The stock has been trending in a tight range at an all-time high for weeks and the indicators are setting up nicely. Looking at the bigger picture, the fundamental story is more than bullish, and one that promises near-term revenue gains will stick.

I mean, it was just a week ago that UPS competitor FedEx (NYSE:FDX) reported better than expected results. The company’s revenue grew 13.5% and beat consensus by 10% due to strength in eCommerce. eCommerce, if you will remember, is one of the strongest trend-stories sparked by the pandemic. Stay-at-home and social distancing drove consumers to the Internet accelerating a trend already in place. FedEx declined to give guidance for the year due to “uncertainties” but there is one certainty; eCommerce is here to stay and it’s a growing industry.

Credit Suisse Gets Bullish On UPS

Analysts at Credit Suisse recently upgraded the stock from Neutral to Outperform. They say the company is on a clear path to high-teens EPS growth and cash-flow conversion, good news for dividend investors. There are three main catalysts driving the stock including pricing, CAPEX, and leadership.

Regarding pricing, the pricing power has shifted to the carriers and that will drive revenue and margin growth going forward. This is something I’ve been seeing in the greater trucking/shipping industry. In terms of CAPEX, spending is likely at a multi-year peak providing a path to further increase margins over the coming years. As for leadership, the new CEO is viewed as an “agent of change” that will drive shareholder value.

"We are dialing in 1% higher revenue growth in both 2020 and 2021, and our domestic margin forecast is an average of 2% above the consensus. This translates to an average of 9% higher EBIT growth and ~6% higher EPS growth than the consensus in 2021 and 2022."

The analysts are generally bullish on the stock but Credit Suisse is among the most bullish. The average rating is barely above buy highlighting another trend in the market that has been developing; overly cautious estimates and upward revisions. Of the 27 major ratings, 9 are still neutral and there are 5 bears. The consensus target is just above recent price action but once again, the consensus is too low. The average analyst has not adjusted their targets to reflect recent business gains. The average bull has a price target of $240 or roughly $80, 50%, above current price action.

UPS Pays A Nice Dividend, Too

 UPS doesn’t qualify as a Dividend King or even a Dividend Aristocrat but it is a dividend payer with a history of growth. The stock is yielding about 2.5%, the distribution has been increased annually for 11 years. The 5-year distribution CAGR is near 7% which isn’t bad, it could be better but there is some debt to consider. The company is well-capitalized and there is free-cash-flow but the debt could become a problem if not addressed.

 The Technical Outlook: UPS Is About To Break Out

Shares of UPS look like they are about to break out of their consolidation range. Another couple of upgrades might be the spark to move the market but who knows, there is a lot of data due out over the next few weeks and UPD is slated to report 3Q earnings in about a month. Until then, watch the $165 level for signs of resistance and/or break out. A move above this level would be incredibly bullish and will likely lead to a sustained uptrend. The indicators MACD and stochastic are still mixed in their signals but are set up to fire a strong entry signal in-line with the prevailing uptrend.