Can UPS Stock Beat the Market?
The package delivery faces near-term pressure, but its yield is massive, and management’s operational strategy makes sense.
UPS (UPS +0.38%) has significantly underperformed the S&P 500 index over the last year, three years, and five years. While the benchmark index is up nearly 88% over the previous half-decade, UPS stock is down almost 44%. Still, long-term value investors love the opportunity to buy a beaten-down stock with potential upside coming from management engineering a turnaround.
What happened to UPS?
It has been a challenging period for the industry, marked by the previous boom in demand driven by pandemic stay-at-home orders, which created overcapacity in the small-package delivery market. When the economy reopened and demand moderated, UPS found itself with less demand than its network was designed to handle.
Image source: Getty Images.
Moreover, the Trump tariffs created significant uncertainty in one of its key end markets, the small and medium-sized business (SMB) sector, in 2025. While large enterprises have the resources to shift suppliers relatively easily, it’s a lot harder for an SMB whose main product comes from China or another country facing hefty tariffs.
One way or another, whether due to management error or end-market dynamics, UPS has missed its initial delivery volume estimates over the last three years.
UPS restructures
In the midst of all of this, the company continues to aggressively pivot toward higher-margin end markets like healthcare and SMEs, while voluntarily reducing low-margin delivery volume for Amazon. The idea is to refocus on more productive deliveries rather than just volume.
United Parcel Service
Today’s Change
(0.38%) $0.36
Current Price
$95.58
Key Data Points
Market Cap
$81B
Day’s Range
$94.50 – $96.00
52wk Range
$82.00 – $136.99
Volume
4.9M
Avg Vol
7.8M
Gross Margin
18.48%
Dividend Yield
6.89%
Moreover, the Amazon volume reduction target of a 50% cut from the end of 2024 to the middle of 2026 enables substantive cost-cutting actions that will help alleviate pressure on its revenue from trade market challenges and tariff conflicts — never good news for transportation companies.
Where will UPS be in a year?
Management’s operational strategy makes perfect sense. Improving productivity by aiming for higher-margin deliveries, investing in productivity-enhancing technologies (such as smart facilities and automation) will also enable facility rationalization. Additionally, investing in growing healthcare and SME-related revenue is a sensible long-term strategy.
Still, its capital allocation policy deserves circumspection. The Wall Street analyst consensus has UPS generating free cash flow of $4.6 billion in 2025, $5.3 billion in 2026, and $4.7 billion in 2027. None of these figures covers the $5.5 billion in dividends that management is committed to maintaining, at the very least.
As such, under that scenario, its net debt is highly likely to increase as UPS will need to fund its dividend. To be clear, UPS could do this and continue to muddle through as it improves its long-term profitability and the delivery market improves. In that case, investors would enjoy a huge dividend, and the stock price is likely to improve.
Image source: Getty Images.
On the other hand, UPS CEO Carol Tomé told investors on a recent earnings call that, “Next year is when you’re going to feel the full brunt of some of these tariffs hitting some of these SMBs,” and the company’s near-term outlook is uncertain.
All told, UPS could outperform if its recovery goes as planned, but it could also underperform if end-market pressures persist and further deteriorate its cash flow.