Shares in UPS (UPS 0.14%) declined by slightly more than 9.5% in 2023, according to data provided by S&P Global Market Intelligence. The move contrasts sharply with the 46% gain of its rival, FedEx, over the same period. What went so badly wrong for UPS in 2023, and where is it heading in 2024?
Three things that went against UPS stock in 2023
First, there's a difference between something working against a company and something working against its stock. It's a subtle but telling differentiation. In this case, it relates to investors' expectations for UPS going into 2023. The company was coming off of a 2022 when it had already hit the 2023 targets laid out at its investor day in June 2021.
Image source: Getty Images.
It was reasonable for investors to expect further progress in 2023, but unfortunately, that didn't happen, and UPS is expected to report a revenue and earnings decline when it gives its full-year earnings. Market expectations were too high in early 2023.
Second, UPS got stuck in protracted labor contract negotiations. The new contracts increased costs, and the threat of strikes encouraged customers to divert deliveries to other networks, including FedEx. The latter's management claims it retained the "majority of the high-quality volume," while UPS believes it's winning it back. Still, the issue hit UPS to the tune of 1.5 million packages per day diverted in the third quarter.
Third, the economy slowed in 2023, which slowed volumes at UPS, causing them to come in lower than expected, even before the labor dispute impacted its operations.
Consequently, UPS revenue is expected to decline by 8.7% in 2023, with earnings per share down 32% to $8.81.
Image source: Getty Images.
UPS will recover in 2024
While last year was disappointing, all the reasons for the stock price decline can turn around through this year. The labor dispute is now settled, and expectations for the stock are currently set. In addition, UPS can grow by winning back lost volumes.
Lower interest rates later in the year should help UPS volumes to recover. And finally, I would argue that UPS enters 2024 with negative investor sentiment behind it, so the stock could be set up to exceed expectations this year.
Meanwhile, management continues progressing toward its strategic objectives of growing revenue in targeted areas like healthcare and small and medium-sized businesses. As such, it looks like an excellent value stock option for patient investors and comes with a dividend yield currently above 4%.
