Last Update19 Sep 25Fair value Decreased 1.05%
Analysts have modestly reduced United Parcel Service’s price target to $103.30 due to immediate volume declines from new import restrictions, persistent cost headwinds, and weak small-business and Amazon volumes, partially offset by longer-term confidence in its core franchise.
Analyst Commentary
- Recent executive orders suspending de minimis access for U.S. imports have caused an immediate fall in shipment volumes, leading to near-term volume and cost pressures.
- Bearish analysts highlight ongoing macroeconomic uncertainty, tariff headwinds, and the elimination of de minimis exemptions as compounding challenges reducing visibility and weakening future outlook.
- Weak quarterly results and outlooks, including declining small-to-medium business volume and continued Amazon business contraction, are cited as drivers for reduced price targets.
- Slower-than-expected cost reductions, compounded by persistent high-fixed costs and increased Ground Saver expenses, are leading to downward revisions in earnings estimates and valuation multiples.
- Bullish analysts maintain some longer-term optimism based on UPS’s quality franchise and growth in small-medium business and Healthcare segments, even as near-term headwinds remain significant.
What's in the News
- UPS has outsourced its weather-forecasting operations to Weather Co. in an effort to cut costs, and is planning to offload additional tech support and investment office functions (Bloomberg).
- MarketWatch reports speculation that UPS could be a contender for Warren Buffett's secret $5 billion industrial investment, though Caterpillar is considered the leading candidate.
- UPS, alongside FedEx, Walmart, and DHL, is deploying robots in warehouses to automate tasks like truck loading and unloading, seeking cost reductions and labor efficiencies, although technology limitations persist (Wall Street Journal).
- The trend toward automation in logistics at UPS is fueled by advances in AI, sensors, and image processing, enabling robots to manage heavier, irregularly shaped packages (Wall Street Journal).
- Cost-cutting and operational efficiency remain key themes for UPS, as seen in both the outsourcing of certain functions and the increased reliance on automation (Bloomberg, Wall Street Journal).
Valuation Changes
Summary of Valuation Changes for United Parcel Service
- The Consensus Analyst Price Target remained effectively unchanged, moving only marginally from $104.40 to $103.30.
- The Consensus Revenue Growth forecasts for United Parcel Service remained effectively unchanged, at 1.5% per annum.
- The Net Profit Margin for United Parcel Service remained effectively unchanged, moving only marginally from 7.56% to 7.52%.
Key Takeaways
- UPS is reducing low-margin Amazon deliveries to focus on profitable segments, expecting improved net margins and operating profit.
- Network optimization and automation initiatives aim to enhance margins and capital returns, alongside significant cost reductions and healthcare sector growth.
- Global trade policy uncertainties, Amazon volume reduction, network reconfiguration, and competition shifts could negatively impact UPS's revenue and operational efficiency.
Catalysts
About United Parcel Service- A package delivery and logistics provider, offers transportation and delivery services.
- UPS is accelerating its transition away from low-margin Amazon volumes, aiming to reduce these deliveries by over 50% by June 2026, allowing the company to focus on more profitable segments, which should improve net margins and operating profit.
- The company's Network of the Future initiative and largest network reconfiguration in history focuses on optimizing capacity and increasing automation, reducing labor dependency and capital requirements, expected to enhance operating margins and return on invested capital.
- UPS anticipates $3.5 billion in annual cost reductions for 2025 through variable, semi-variable, and fixed cost savings, positioned to exceed the revenue loss from Amazon. This should improve profitability and free cash flow.
- The acquisition of Andlauer Healthcare Group aims to strengthen UPS's healthcare logistics capabilities in Canada, fueling revenue growth in the healthcare sector, a segment expected to grow in the high single digits.
- UPS's new Ground Saver product, replacing SurePost, aims to capture higher-margin business by allowing more operational flexibility, ultimately driving improved revenue per package and operating margin.
United Parcel Service Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming United Parcel Service's revenue will grow by 1.5% annually over the next 3 years.
- Analysts assume that profit margins will increase from 6.3% today to 7.6% in 3 years time.
- Analysts expect earnings to reach $7.1 billion (and earnings per share of $8.58) by about September 2028, up from $5.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $5.7 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, up from 12.5x today. This future PE is lower than the current PE for the US Logistics industry at 16.6x.
- Analysts expect the number of shares outstanding to decline by 0.68% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.95%, as per the Simply Wall St company report.
United Parcel Service Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The ongoing uncertainty surrounding global trade policies, particularly U.S. tariffs on Chinese goods and changes to the de minimis exemption, could negatively impact consumer demand and lead to decreased shipping volumes, thereby impacting revenue.
- The planned significant reduction in volume from Amazon, which is expected to be more than 50% by June 2026, could lead to substantial revenue loss, even though it involves less profitable volume.
- The temporary impact of reconfiguring UPS's network, including the closure of 73 buildings and reorganization efforts, while aimed at efficiency, may introduce short-term operational challenges and costs, potentially affecting net margins.
- Increasing competition and the shift of freight from air to ocean by some businesses in response to tariff cost pressures could impact shipping volumes and revenue, particularly in the international shipping segment.
- The ongoing supply chain shifts, particularly the move from China to other global trade routes, while expected to eventually stabilize, could cause interim inefficiencies and potential revenue fluctuations especially during periods of adjustment.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $104.4 for United Parcel Service based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $133.0, and the most bearish reporting a price target of just $75.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $94.5 billion, earnings will come to $7.1 billion, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 8.0%.
- Given the current share price of $84.4, the analyst price target of $104.4 is 19.2% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
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Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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