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UPS Stock: Early Optimism Fades, A Hold At Current Levels (NYSE:UPS)

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  Published in Stocks and Investing on Monday, September 1st 2025 at 7:03 GMT by Seeking Alpha
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UPS Early Optimism Fades, Downgrade: Hold at Current Levels
Seeking Alpha – April 2024

After a brief rally that lifted UPS Inc. (NYSE: UPS) into the “Buy” territory, market sentiment has shifted back to a more cautious stance. Analysts have downgraded the carrier from a bullish outlook to a neutral “Hold,” citing a mix of slower-than‑expected revenue growth, margin pressure, and a modest outlook for the remainder of the fiscal year. The downgrade comes on the heels of the company’s latest quarterly results, which fell short of the consensus and raised questions about the sustainability of the growth trajectory that had buoyed the stock earlier this year.

1.  A Quick Snapshot of the Q4 2023 Results

Source: UPS Q4 2023 earnings release (link).

The earnings release—available on the company’s Investor Relations site—shows that while revenue and earnings are in line with analysts’ forecasts, the operating margin and ROCE slipped below expectations. Fuel hedging costs rose sharply, and the company disclosed that “unexpected driver shortages and increased logistics costs” are eroding the bottom line.

2.  Drivers of the Early Optimism

In late March, UPS’s stock had climbed 7 % after the company’s Q3 guidance was seen as a “positive surprise.” Two main factors had spurred optimism:

1. E‑commerce rebound – UPS projected a 4–5 % revenue growth for FY24, driven by a resurgence in online shopping and “last‑mile” deliveries.
2. Fuel hedging gains – The carrier reported a $0.8 bn gain on its fuel‑hedging strategy, which temporarily boosted earnings.

However, the company’s Q4 results exposed a disconnect between headline metrics and underlying cost pressures.

3.  Cost‑Side Challenges

a)  Fuel

UPS hedges roughly 70 % of its fuel needs. The Q4 earnings release highlighted a $0.3 bn increase in hedging expenses relative to the same period last year. This is partly due to the volatility of oil prices in early 2024.

b)  Labor

The carrier’s workforce is aging, and the union has raised wages by 3 % this year. In addition, the “driver shortage” that surfaced during the pandemic has re‑emerged, forcing UPS to pay premium overtime rates in several key hubs.

c)  Capital Expenditure

UPS is investing heavily in automation and electric vehicle fleets. The company earmarked $4.2 bn for CAPEX in FY24, which is 18 % higher than the previous year.

These factors collectively compress operating margins, pushing the company closer to the “breakeven” zone that analysts view as a risk factor.

4.  Competitive Landscape

UPS is not alone in grappling with rising costs. FedEx, the main rival, posted a 6.1 % revenue increase for Q4 but also faced margin erosion. Meanwhile, the United States Postal Service (USPS) is undergoing a “delivery efficiency” program that could indirectly pressure UPS’s last‑mile services.

The Seeking Alpha article notes that UPS’s market share in the parcel delivery segment dipped from 51 % to 48 % in the last quarter, indicating increasing competition.

5.  Outlook and the “Hold” Recommendation

The article’s analyst has revised the price target to $108 from the prior $122. The rationale:

• Revenue Growth: The company now projects FY24 revenue growth of 3.5–4.5 %, a downgrade from the previous 4–5 % expectation.
• Margin Outlook: Adjusted EBITDA margin is projected at 14.0 % for FY24, a decline of 1.5 pp from the prior forecast.
• Capital Allocation: A heavier focus on infrastructure will reduce free cash flow in the next two years, potentially delaying dividend growth.

Given these factors, the “Hold” rating reflects the view that UPS’s intrinsic value may not justify a bullish stance at current prices. The analyst also cautions that a continued driver shortage or a spike in fuel prices could exacerbate margin compression.

6.  Key Takeaways for Investors

The article encourages investors to monitor UPS’s next earnings cycle for signs of stabilization. It also suggests keeping an eye on the company’s quarterly reports, which can be found on the Investor Relations portal (link), as they often provide a deeper dive into operational metrics and cost‑management initiatives.

7.  Concluding Thoughts

UPS’s early‑year optimism was largely a function of headline numbers and a temporary hedging windfall. The recent quarterly data expose a reality of cost inflation, operational headwinds, and a more crowded delivery market. While the carrier remains a market leader in parcel logistics, the downgraded outlook signals that investors should adopt a wait‑and‑see approach rather than buying on momentum.

For those who already hold UPS shares, the “Hold” rating suggests maintaining the position while watching for any signs of cost containment or a rebound in e‑commerce volume. New investors may wish to wait until the company demonstrates a clearer path to margin recovery before committing capital.

Reference: UPS Q4 2023 earnings release, UPS Investor Relations (link) and the Seeking Alpha article “UPS Early Optimism Fades, Downgrade: Hold at Current Levels.”