United Parcel Services (UPS) is an American multinational freight and supply-chain company. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Credit Suisse Upgrades UPS to Overweight
Credit Suisse (CS) announced its list of top outperform names for November, and UPS was among nine stocks mentioned. The selection criteria included conviction and HOLT, a metric that determines the balance sheet’s ability to convert assets into lucrative cash flows.
Conviction plays don’t need to be overthought. UPS’ business flow will most likely increase over the near term for two reasons. First off is the factor of improved capacity utilization after initial lockdown reopenings. Secondly, the Thanksgiving and Christmas holidays are upon us, which means online orders will probably peak.
Third-Quarter Earnings and Outlook
UPS managed to beat its revenue estimates for the seventh straight quarter when it released its third-quarter results in October.
Consolidated revenue grew by 9.2% year-over-year to reach $23.2 billion, with U.S. revenue growing by 7.4% and international revenue by 15.5%. Furthermore, operating income increased by 22.6% year-over-year, and EPS by 18.3% to add to shareholder residual.
After releasing its third-quarter results, the company raised guidance on its outlook. UPS increased its full-year operating margin forecast to 13% versus its current 8.43%; its management also thinks return on invested capital will reach the 29% mark.
UPS Is Becoming a Respectable Dividend Play
UPS has increased its dividend payout for twelve consecutive years. At the start of the month, the company declared a $1.02 quarterly dividend payable on December the 8th. This implies a forward yield of 1.93%.
The outlook for UPS’ dividend-seeking investors remains bright if the key metrics are considered in tandem.
UPS has $12.94 billion in cash from operations, which is 54.70% higher than its 5-year average, and it also has a cash per-share value of 11.75. Many think dividends get distributed from a company’s net income. However, it actually derives from operating cash flows, and if we consider the two data points mentioned, there’s no reason to believe that dividend growth will stagnate anytime soon.
Wall Street’s Take
Having already mentioned Credit Suisses’ take on UPS, let’s look at the rest of Wall Street’s consensus. The company has a Moderate Buy consensus rating, based on nine Buys, six Holds, and one Sell assigned in the past three months. The average UPS price target of $223.07 implies 5.23% upside potential.
Concluding Thoughts
UPS is a conviction play at the moment, and robust third-quarter earnings results provide a sound foundation. In addition, the stock is a great dividend play showing constant growth.
Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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