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United Parcel Service Updates Its 2019 Outlook

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Full-year outlook

Alongside its release of its first-quarter earnings results, United Parcel Service (UPS) has updated its guidance for 2019. Despite sluggish revenue growth and a fall in its earnings during the first quarter, the delivery giant reaffirmed its adjusted EPS guidance for 2019.

The company continues to expect EPS of $7.45–$7.75 (with a midpoint $7.60) in 2019, signifying a YoY (year-over-year) rise in the range of 3%–7%. UPS’s earnings guidance range is also higher than analysts’ average estimate of $7.56.

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During UPS’s first-quarter earnings release, CFO Richard Peretz said, “Transformation is creating a firm foundation for performance well into the future.” He added, “Our strategies and initiatives are driving additional network efficiency and flexibility, and we remain confident in achieving our targets for the year.”

Furthermore, the company expects an effective tax rate 23%–24% for the full year. Its adjusted free cash flow is expected to come in the range of $3.5 billion–$4 billion.

In the second quarter, UPS expects to see a YoY rise in its overall operating profit. However, its adjusted EPS are expected to be flat YoY due to planned pension financing costs.

UPS expects its third-quarter adjusted EPS to benefit from multiple tailwinds, including one extra operational day and expectations of a non-repeat of its 2018 commodity headwinds this year.

Analysts’ recommendations

Wall Street analysts aren’t optimistic about UPS’s near-term growth prospects, as is reflected in their ratings and target prices. The stock has received a consensus “hold” recommendation from analysts polled by Reuters.

Approximately 37% of the 27 analysts tracking the stock have given it bullish recommendations. About 56% have given it “holds,” and the remaining 7% are bearish. Analysts’ average target price of $117.59 reflects a potential return of a mere 2.8% over the next year.

Wall Street analysts have a similar view on the majority of UPS’s competitors in the delivery and logistics industry (IYT). Though analysts have provided “buy” recommendations on FedEx (FDX), their average target price on the stock reflects a potential gain of 6.7% for it within the next year. Analysts have mostly “hold” recommendations on Old Dominion Freight Lines (ODFL), and their consensus target price signifies a potential fall of 4.3%.

On the other hand, XPO Logistics (XPO) has received mostly “buy” ratings, and analysts see a 14.4% potential upside in its stock.

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