The holiday shopping season is a busy time for package delivery companies like United Parcel Service (UPS 0.16%). This may be contributing to the stock's recent strong performance.
UPS shares rallied after a strong earnings release in October and have continued to rally since then. However, before you rush out and buy this hot stock as it crosses the $100-per-share mark, you may want to consider the following.
NYSE: UPS
Key Data Points
UPS has become a popular dividend and turnaround play
Many factors affected UPS's operating performance in recent years. These include the post-pandemic drop in e-commerce volumes and higher labor costs, as well as the impact of competition, including competition from Amazon, one of its largest customers.
Image source: Getty Images.
However, since the earnings release, future potential, not past challenges, has been top of mind. With UPS delivering an earnings beat during Q3, not to mention a reiteration of its cost-cutting plans, the market expects improved results to continue.
That's good news for two reasons. First, stronger earnings should lessen concerns about dividend sustainability. UPS has a high forward dividend yield of 6.6%, but the stock's payout ratio comes in at a staggering 87%. There have been worries about a possible dividend cut. Second, improved profitability and a return to positive revenue growth could help to further bridge the valuation gap between UPS and its competitor, FedEx. UPS currently trades for 13.5 times forward earnings, while FedEx trades at a slightly higher forward P/E of 16.5.
Why it may not be too late
Having said all of this, only time will tell whether UPS continues to climb. Sell-side analysts only expect earnings to rise 4.2% in 2026. While the company beat expectations last quarter, it's unclear whether this will happen again for this quarter.
Come late January, when UPS reports its next earnings, the results could fall short of expectations, possibly leading to further volatility in the shares. UPS's turnaround will take years, not quarters, to take shape. Chances are, you probably haven't missed your last chance to buy this stock for under $100 per share.
