UPS (UPS +0.61%), one of the world's top shipping couriers, was once considered a stable long-term investment. It operates in over 200 countries, delivers an average of 22.4 million packages daily, and employs nearly half a million people worldwide. UPS has also been a member of the S&P 500 for 23 years and has raised its dividend annually for 16 consecutive years.
However, over the past two years, UPS's stock has plummeted by more than 50% as its deliveries decelerated, its operating margins shrank, and its EPS declined. That slowdown was caused by inflationary headwinds for consumer spending, intense competition from FedEx (FDX +2.16%) and other courier services, and the threat of a strike from the Teamsters Union in 2023, which drove some of its nervous customers to shift their deliveries to its competitors.
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In 2023, UPS's revenue declined 9%, its adjusted operating margin shrank 290 basis points to 10.9%, and its EPS plunged 41%. In 2024, its revenue growth flatlined, its adjusted operating margin dropped another 90 basis points to 9.8%, and its EPS fell 13% -- even after it signed a new contract with the Teamsters and raised its prices to offset its declining shipment volumes.
From 2024 to 2027, analysts expect UPS's revenue to grow at a compound annual growth rate (CAGR) of less than 1% as its EPS grows at a CAGR of 11%. Those growth rates seem sluggish, but its low forward price-to-earnings ratio of 13 and high forward dividend yield of 6.8% could limit its downside potential.
Assuming UPS matches analysts' estimates and still trades at 13 times forward earnings by the beginning of 2027, its stock price could rise about 23% to $119 within the next two years, driving its market cap to just over $100 billion.
NYSE: UPS
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That outlook seems stable, but the Trump Administration's unpredictable tariffs, intensifying trade war with China and its other trading partners, and other macro headwinds could cause UPS to miss those estimates. So instead of putting too much faith in UPS's turnaround, investors should check out another company that has a brighter future, pays a high dividend yield, and could easily eclipse UPS's market cap within the next two years: Enterprise Products Partners (EPD +0.19%).
What does Enterprise Products Partners do?
Enterprise Products Partners builds pipelines for transporting natural gas, natural gas liquids, and crude oil. It operates over 50,000 miles of pipeline across the United States with a combined storage capacity of over 300 million barrels of oil.
As a midstream company, Enterprise generates revenue by charging upstream extraction companies and downstream refining companies "tolls" to use its pipes. Pipeline builders generally aren't affected by fluctuating fuel prices since they only need crude oil and natural gas to keep flowing through their pipes to generate consistent profits.
Therefore, Enterprise and its peers are generally well-insulated from inflation and other macro headwinds. Moreover, the Trump Administration's promotion of domestic fossil fuels to reduce America's dependence on foreign fuel could generate strong tailwinds for Enterprise and its peers over the next few years.
NYSE: EPD
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Enterprise is also a master limited partnership (MLP), which blends the tax advantages of a private partnership with the liquidity of a publicly traded stock. MLPs report their profits in earnings per unit (EPU) instead of the traditional earnings per share (EPS). MLPs also aim to return most of their EPU to their investors as distributions.
From 2014 to 2024, Enterprise's EPU grew at a steady CAGR of 6%. It currently pays a forward distribution of $2.14 per share, which equals a hefty forward yield of 6.9%. It's raised its distribution annually for 27 consecutive years.
Analysts expect Enterprise's EPU to continue growing at a CAGR of 6% from 2024 to 2027. That growth should be driven by the expansion of its pipelines across the Permian Basin, the Neches River, Morgan's Point, and other oil-rich locations.
Enterprise Products Partners could generate slow but steady growth
At $31, it trades at just 11 times this year's EPU estimate. If Enterprise keeps matching analysts' estimates and trades at a more generous 15 times forward earnings by the first quarter of 2027, its stock price would rise 53% to nearly $48 and boost its market cap to $102.5 billion. That's why Enterprise has a shot at surpassing UPS's market cap over the next two years. But even if its market cap doesn't top $100 billion, it's still a less stressful way to earn extra income in this volatile market.
