United Parcel Service: UPS Stock Is Falling, An Opportunity?

United Parcel Service NYSE:UPS stocks fell sharply following fourth-quarter results and 2024 guidance, confirming resistance at a critical level. The technical signal is bearish and could knock another 7.5% off the stock price, but that could be the extent of the move. While results and forecasts were weak, continuing the trend established earlier in the year, a return to growth is within reach for this transportation stock and the high-yield dividend is reliable.

The company’s cost-cutting efforts and movement toward efficiency and modernization are paying off, significantly strengthening profits and setting the company up for accelerated earnings growth in the coming years. 2024 may not be as strong as analysts hoped due to headwinds beyond United Parcel Service’s control, but interest rates will eventually fall and spark the global economy. The question is when the FOMC will make the first cut and what might happen between then and now to impact UPS’s business.

United Parcel Service has a weak fourth quarter and leads the bear market for 2024

United Parcel Services’ fourth-quarter results were as expected: They continued the trend established in early 2023. That trend includes weaker-than-expected results and guidance offset by sequential margin improvement.

Revenue of $24.9 billion was up sequentially due to seasonal strength, but down 7.8% from last year. Revenue missed consensus by 170 basis points due to weakness across all segments. The U.S. household segment fell 7.3% on a 7.4% decline in volume offset by price increases. The international sector fell 6.1% on an 8.3% contraction in volume, while supply chain solutions fell 11.4%.

Margin news is mixed. The margin is stronger than expected but is still down significantly compared to last year. Adjusted consolidated operating margin rose to 11.2% in the fourth quarter, up from 10% for the year, leaving adjusted earnings in line with the consensus target of Marketbeat.com analysts. However, it is down nearly 32% year over year, with only marginal strength expected in 2024.

The guidance is what led the market to drop 7% in pre-market trading. The company guided 2024 to growth but significantly below analysts’ forecasts. Margin is expected to improve slightly from last year, but contract from the fourth quarter. The bottom line is that analysts are redefining their expectations for the company and will continue to provide a headwind to the market in the next quarter or two.

Analysts’ hopes are dashed by UPS’s indications

The trend in analyst sentiment was bearish in 2023, but began to improve in 2024. The stock received two increased price targets from major firms who rated it a Buy the week before the release of the fourth quarter report. However, the trend in sentiment remains bearish and is unlikely to change now that the guidance has arrived.

At best, the analyst will restate targets, which suggests a market floor is in play. The low end of the analyst range is $155, placing the market in deep value territory with its post-release collapse. The consensus assumes an upside of around 20% from this level, but there is a risk that the low end and consensus will continue to trend lower into 2024.

The technical outlook: UPS stock falls, lower prices yet to come

The technical picture is rather bearish for UPS shares. The market rebounded in 2023, but has reached a ceiling that now stands as significant resistance. The downside move is compounded by a solid stochastic sell signal that suggests a move towards the latest lows is possible.

The risk is that the stock falls below that level this year and extends the trend towards new lows. One possible catalyst is analysts, another is first quarter results, and yet another is value. UPS stock has a high yield above 4.15%, but the valuation is also relatively high, which is another reason why the stock may struggle to gain traction in the first half of the year.

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