UPS Stock: A Strong Buy Amidst Price Decline

UPS shares have dropped over 50% since 2022, raising investor concern. However, this analysis shows UPS as a promising long-term buy, citing potential profit growth and a robust dividend yield.

Date: 17-05-2025

AI Rating: 7

Current Performance and Future Prospects of UPS

UPS has faced significant challenges that have seen its stock plummet over 50% since its peak in 2022. The decline was influenced by a variety of factors, including the end of a delivery boom stemming from the pandemic, negotiations with the Teamsters Union, and a significant reduction in volume for shipments to Amazon, which constitutes a notable portion of its revenue. Despite these hurdles, there are hopeful signs for investors.

According to the report, UPS posted earnings growth of 4.2% in the first quarter of 2025, suggesting a turnaround in profitability. It is also noted that the burdensome costs associated with the Teamsters contract are front-loaded, indicating that the most challenging financial impacts may already be behind them. This can help stabilize profit margins going forward.

UPS has made a strategic decision to substantially decrease its reliance on Amazon, aiming for a reduction of over 50% in shipments by 2026. While this may seem alarming on the surface, the company believes this shift will enhance profitability, focusing instead on more profitable delivery options in healthcare and SMB markets, potentially offsetting the lost revenue from Amazon volume.

UPS's concerns regarding tariffs affecting shipment volumes from China to the U.S. do add a layer of risk. However, the company anticipates compensating for these challenges through increased shipments from China to other international markets, suggesting a proactive approach to revenue generation.

Lastly, UPS's forward dividend yield of 6.58% remains a strong attraction for investors, positioning it uniquely in a market where many companies are scaling back their dividends. With shares trading at 14.6 times forward earnings, which is relatively low historically, investing in UPS could potentially yield significant returns in the long run.

Stocks: UPS