United Parcel Service (NYSE: UPS) has exciting long-term targets, however the near term is not looking so shiny. Investors are focused on what is correct across the corner, sending UPS shares down nearly 8% as of 1:30 p.m. ET.
Speed bumps up ahead
Investors went into UPS’ annual investor day with high hopes and the corporate delivered some eye-catching forecasts. The shipping giant upped its goal for 2026 revenue to between $108 billion and $114 billion and said it expects an adjusted operating margin of 13% by then.
For comparison, the corporate generated $91 billion in revenue in 2023. The Wall Street consensus estimate for 2026 was $101 billion.
It has been a dark environment for shippers as large customers have scaled back inventories attributable to questions on the economy and the health of the buyer. UPS warned the present quarter can be the “hardest” of 2024, saying that profits will likely be down 40% 12 months over 12 months. The corporate has responded by in search of to aggressively cut costs.
“After coming off a difficult market in 2023, the small package industry is poised to return to growth in 2024 and beyond,” CEO Carol Tomé said in a press release. “Over the following three years, we plan to make daring moves to create a growth flywheel in premium markets, while at the identical time drive higher productivity and efficiency.”
Is UPS a buy after its investor day forecasts?
Shares of UPS are down 22% over the past 12 months and have fallen nearly 40% from their pandemic highs reached back when shipping was the one thing keeping the retail economy alive. A part of the drop is cyclical, however the stock has underperformed archrival FedEx by 22 percentage points up to now in 2024 and by greater than 50 percentage points over the past 12 months.
FedEx shares have rebounded currently because management was capable of reassure investors that its cost-cutting campaign was working. UPS, based on its commentary on the months to return, remains to be a “prove it” story for investors. There’s great potential here, but management must show progress before the shares hit the fast lane.
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Lou Whiteman has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends FedEx. The Motley Idiot recommends United Parcel Service. The Motley Idiot has a disclosure policy.
Why United Parcel Service Stock Is Sputtering Today was originally published by The Motley Idiot