Our initial price target for United Parcel Service is set at $95.21. We believe in a cautious approach in our analysis as UPS has been clouded with sustainability issues, higher costs, and internal headwinds.

Can UPS navigate financial and operational pressures with resilience?

Launched in early 2025, UPS's "Efficiency Reimagined" outlined the company’s largest network overhaul in company history, this multi-year initiative outlooks management's goals to streamline domestic operations.

UPS is expected to close 73 facilities by 2027, move 50% of package volume away from Amazon by 2026, and increase automation with AI to promote efficiency and per unit costs.
UPS has announced cost reduction plans to cut nearly 20,000 jobs via buyouts/layoffs and has initiated a new "Ground Saver" product aiming to provide business's more operational flexibility to improve per package costs and operating revenue.

Can UPS maintain current operations with such an unprecedented initiative?

UPS issued over $5 billion in long-term, senior unsecured debt in May 2025. A bullish strategy from management that suggests that they believe external financing to manage short-term obligations and initiatives will pay dividends for the company's long-term growth as they seek to optimize current operations.

Prioritizing short term liquidity to promote efficiency and innovation will increase interest expenses in the long term that will weigh on net income in future earning cycles. This highlights a constraint on their financial flexibility going forward unless profit margins and/or revenues increase.

Will management clean up their act?

On top of pressing financial matters, UPS continues to find themselves clashing with their union workers and loyal shareholders.

Ahead of this year’s 2025 annual meeting, UPS received two shareholder proposals. One requested a report analyzing risks tied to the company’s voluntary carbon-reduction commitments, and the other called for equal voting rights across all outstanding shares to improve governance transparency. UPS opposed both proposals and urged shareholders to vote against them. As both votes following the annual meeting did not pass, management's intent to maintain control over strategic decisions and its current governance structure has caused shareholder's sentiment to weaken.
After delaying corporate action for nearly a year, UPS responds to International Brotherhood of Teamsters's threat of strikes over unresolved grievances and workers' rights violations. This has led to settlements being issued resulting in an increase in wages for UPS to ensure continued distribution from its operating centers.

These pressures, combined with declining revenue and earnings per share across recent quarters, suggest that profitability will continue to struggle.

The Response, New Partnerships?

Entering into a 3-year agreement with PeriShip Global, LLC, UPS is providing API access to PeriShip for time-sensitive and perishable shipments. PeriShip Global will be able to leverage UPS's real-time monitoring, weather tracking, and issue resolution programs, underscoring UPS's continued superiority in tech-leveraged efficiency.

Also forming a partnership with AMEX (American Express) aimed to help small/medium-sized businesses to grow commerce by providing discounted shipping costs aimed to increase shipping volume as holiday season quickly approaching.

These partnerships can raise brand trust if there are no hiccups along the way but have not seemed to move the needle for shareholders like they may have expected.

Wrap-Up

Bullish Takes

Management is taking steps to address the pressures through their "Efficiency Reimagined" initiative. If successful, this could stabilize or improve profitability.
A new levered balance sheet shows management's commitment to cleaning up their short-term issues with the vision of maximizing profit margins down the line.
Cultivating new partnerships will help improve a tainted brand name and uneasy shareholders.

Bearish Takes

Declining revenue and earnings per share over multiple quarters suggest a negative trend that could continue.
The outlook hinges on the success of their current initiative. If it fails, the strain on profitability may worsen.
Shareholder pressure and employee conflicts can hinder management's ability to follow through with their master plan.

Our Numbers

We expect United Parcel Service's revenue will grow by 1.75% annually over the next 3 years, just slightly above their current growth rate of 1.73%.
We expect that profit margins will increase to 7.15% from 6.34% over the next 3 years.
We expect earnings to reach $6.9 billion (EPS of $8.31) by end of Q3 2028, an increase from $5.7 billion today (current EPS of $6.76).
To justify our price target, we expect the company to make ground on its competitors and trade at a PE ratio of 14.5x on its 2028 earnings, up from 12.7x today, but still below industry of 18.1x, under our assumption of a discount rate of 8.15%.
Our current fair value price target of $95.21 is 10.1% higher than the current share price of $85.64.

Disclaimer

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