Should You Buy UPS Stock While It's Below $90?

One thing everyone can agree on is that it has been a tough couple years for United Parcel Service (NYSE: UPS). Based on its Oct. 8th closing price, the freight and logistics giant's stock is not only down over 30% YTD, but has also slumped to a five-year low.

That's a stark contrast to the S&P 500's 14.9% gain this year, as well as the SPDR Industrial Select Sector ETF's (NYSEMKT: XLI) 19.2% advance. In fact, of the 79 stocks in the industrial sector, only one -- Fortive -- has performed worse than UPS this year.

Although the Atlanta-based company -- best known for its fleet of brown trucks and couriers -- has faced scores of challenging world events, economic cycles, and market disruptions since its founding in 1907, it has always found a way to navigate the turmoil at hand and return to growth.

Image source: UPS.

Today, UPS's market value has dropped to $73 billion, and along with it, its weight and influence in dozens of industrial, transportation, air freight, logistics, and other funds and ETFs that still own it as a core holding.

One other factor that is helping to keep long-term shareholders on board, while at the same time tempting new investors to consider taking a stake, is its 7.6% dividend yield. The quarterly payout has been increased for the past 16 years and is seen as an indication of management's commitment to returning capital to shareholders.

But is it cheap?

At current levels, UPS has a forward price-to-earnings ratio of 13.3x, along with a price-to-sales ratio of 0.8x and a price-to-book ratio of 4.6x. All three of these metrics are currently at low-single-digit percentiles compared to their 20-year averages. Said another way, over the past 20 years, UPS' P/E, P/S and P/B ratios were higher than they are right now 96% to 99% of the time.

With the company's Q3 earnings expected the last week of October, investors are awaiting fresh updates on how tariffs, consumer and business sentiment, and global trade conditions are affecting business. Specifically, investors want to know if there has been any stabilization (or growth) in its average daily volume (ADV) of packages handled (domestically and internationally), the revenue and cost per piece for each package handled, and the latest status of its "glide down" with Amazon, as it internalizes more of its delivery business.

Earnings track record and outlook

Over the past five years, UPS has delivered relatively consistent earnings results, having missed Wall Street's EPS consensus estimate just three times in the past 20 quarters -- by $0.02 last quarter, $0.20 in Q2 2024, and $0.01 in Q1 2023.

As for sales, however, UPS has missed revenue estimates nine of the past 20 quarters, though it did beat top-line estimates in both the first and second quarters of this year.

For this earnings season, Q3 consensus expectations are looking for UPS to earn $1.33 per share, down 14.4% year over year, on $20.9 billion in revenue, down 1.3% from last year.

Street view

Wall Street opinion of the stock is split right down the middle, with 14 Buy/Strong Buy ratings, 14 Hold ratings, and 3 Sell ratings. Analysts' average 12-month price target is $100, implying roughly 17% upside from current levels, but from $75 to $133.

UPS may not be able to compete with the growth rates of the market's high-flying AI or tech leaders right now. But for long-term investors looking for income and an attractive entry point that's historically cheap compared to where UPS has traded over the past 20 years, this could be a good time to start building a stake in this 118-year-old blue chip industrial/transportation stalwart.

Matthew Nesto has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends United Parcel Service. The Motley Fool has a disclosure policy.