United Parcel Service (UPS) Pre-earnings Analysis

United Parcel Service (UPS) Pre-earnings Analysis

Chart done on daily timeframe. UPS is set to report its Q1 earnings this week on Tuesday before market open. The company is expected to post a profitable quarter, but profit estimates are much lower in comparison to same quarter last year. Higher wage costs and rising fuel prices are still the big concern for analysts this year as they were last year. Overall macroeconomic pressures and soft sales in Europe reflected a year over year decline in revenue for UPS from 2022 to 2023. Revenue dropped nearly 10% and brought net income down with it. The struggle is expected to carry into this quarter, but despite the lackluster earnings, the company may still catch Wall Street’s attention. 

Trading at a valuation of only 18 P/E, UPS offers a “cheap” valuation in comparison to the rest of the market.  In conditions that are so inflated, investors have been looking for value stocks to buy so depending on how UPS performs, these earnings may be a catalyst for a push in the coming quarter. Knowing what we know about their performance last year, investors will be watching closely for their European market performance as well as their projected guidance. UPS may be suffering in the short term, but it is still a behemoth in its industry and is seen as a sound investment. 

Earnings prediction:

This one is especially difficult to predict on earnings because on one hand the company’s revenues are declining, but on the other hand its valuation is extremely attractive. I’d allow UPS to report earnings before taking a trade on them. If they post strong revenue and gap up then it will be worth looking into calls for the next quarter. 

Option chain analysis:

Options for UPS that expire on April 26th, 2024 currently reject an implied volatility reading of 68%, which translates to about a $8.35 move from the underlying stock. The direction of the move will depend on the how markets feel about UPS’s report.