When we ask what United Parcel Service (UPS 2.68%) might look like in a year, the underlying question is really this: if I buy the stock now and sell it in a year, what price will I get? Let's see.
UPS' plan for 2026
If management's vision comes true, UPS will emerge from 2026 as a leaner, more productive company, having successfully engineered a "glide down" in less profitable Amazon deliveries while growing in more profitable targeted markets such as small and medium-sized businesses (SMBs) and healthcare.
The company's productivity aims include investing in smart technology and increasing the percentage of U.S. delivery volumes passing through automated facilities from 66.5% at the end of 2025 to 68% by the end of 2026. This glide down should enable significant cost cuts. UPS closed 93 buildings in 2025 and deployed automation in 57 buildings, and management plans to close another 24 in the first half of 2026 while reducing 30,000 positions.
Image source: Getty Images.
Consequently, management expects a significant improvement in the back half of 2026, ultimately building on the adjusted free cash flow (FCF) of $5.5 billion in 2025 to reach $6.5 billion in 2026. CFO Brian Dykes told investors to expect $3 billion in capital expenditures in 2026 (down from $3.7 billion in 2025), noting on the earnings call that, after the inflection point, capital spending would be about 3% to 3.5% of revenue.
Armed with these numbers at the end of 2026, the company should have ample FCF to cover its $5.4 billion dividend and grow FCF on the back of margin expansion and relatively low capital spending requirements. In addition, $6.5 billion in FCF would put UPS shares at just 15.6 times FCF. Throw in the current 5% dividend yield, and the potential return in one year is significant.
| UPS Metric |
2025 |
2026 Est |
|---|---|---|
|
Revenue |
$88.7 billion |
$89.7 billion |
|
Capital spending |
$3.7 billion |
$3 billion |
|
Free cash flow |
$5.5 billion |
$6.5 billion |
Data source: UPS presentations.
A few words of caution
Before hitting the buy button, consider that FCF benefited from $700 million in property sales last year, and it's highly likely the bulk were due to the site consolidations referred to above. Strip them out, and the FCF of about $4.8 billion didn't cover the dividend. Moreover, it's not clear how much management is assuming for these sales in their 2026 FCF assumptions. However, it can't rely on them to generate cash forever.
Second, lowering capital spending during downsizing is much easier than keeping it low when the company is looking to grow in selected end markets. As such, the $3 billion in capital spending in 2025 may prove an unsustainable low point.
NYSE: UPS
Key Data Points
A stock to buy?
All of this is not to be too critical, because UPS's operational plans do make sense, and the company is clearly making progress. However, any assessment of the company in a year's time needs to acknowledge that there's more risk around the company's operational execution, end markets, and ability to generate FCF to cover its dividend on an ongoing basis in 2026 than is implied by management's guidance.
