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By Brendan Gilmartin

Overview

United Parcel Service (NYSE:UPS) is scheduled to report 3Q earnings before the opening bell on Tuesday, October 25. The actual results are typically released at 7:45 a.m. EST with a conference call to follow at 8:30. UPS is a closely-watched barometer on the health of the U.S. economy and therefore has the potential to influence the broader market gauges, including the equity index futures and ETFs.

Outliers & Strategy

  • The closest rival of UPS, FedEx (NYSE:FDX) reported stronger than expected results for its fiscal 1Q (2012) back on September 22. Among the takeaways from the FedEx release:
    • Earnings Per Share (EPS) was $1.46, $0.01 ABOVE Street estimates. Revenue of $10.52 billion was up 11% from $9.46 billion the previous year.
    • FedEx noted that, while revenue and earnings increased significantly in the quarter due to strong FedEx Ground performance, the economic environment is challenging. Furthermore, the U.S. and global economy grew at a slower rate than anticipated during the quarter.
  • Note that UPS often reports a figure for Adjusted Earnings Per Share (EPS) that is comparable to consensus estimates.
  • UPS is expected to earn $1.05 per share for the 3Q period, up from $0.93 a year ago (Source: Yahoo! Finance). The range is $1.01 to $1.11. Revenues are seen rising 8.10% to $13.17 bln. Note that the estimate for full year 2011 is $4.23 per share, the low end of the projected range of $4.15 to $4.40.
  • UPS is trading at just 14.6 forward earnings, while paying a respectable 3.00% dividend.

Recent News

  • 10/21: J.P. Morgan said it has an Overweight rating and $82 price target on UPS. The firm sees UPS posting a strong 3Q 2011 earnings release thank to pricing strength and operating execution. Benzinga.com
  • 10/11: Jefferies maintained a Buy rating and an $82 price target on UPS. Benzinga.com
  • 09/16: Deutsche Bank maintained a Buy rating and $86 price target on UPS, following an upbeat investor day, highlighting productivity gains and solid pricing. The firm sees a compelling risk/reward. Benzinga.com
  • 09/15: UPS announced diluted earnings per share are expected to grow 10 to 15% from 2011 to 2016. UPS Chief Financial Officer Kurt Kuehn also reaffirmed the 2011 guidance range for adjusted diluted earnings per share of $4.15 to $4.40.

Technical Review

UPS shares are up almost 15% from the October lows near $61, climbing back above $68 resistance and in-line with the 200-Day SMA near $70. In the event of a positive earnings release, there is room to rally toward the July peak near $74. Conversely, support lies at $69 followed by $68 – a prior resistance level now turned support. Note that the upward-sloping 20-Day SMA, increasing Relative Strength Index (RSI), and improving MACD – all indications of positive momentum. (Chart courtesy of StockCharts.com)


Summary

UPS shares are well off the October lows near $61 on decreased fears over the current economic malaise and a recently positive analyst meeting in mid-September. Last month, UPS reiterated its full year earnings guidance and outlined plans to grow EPS 10% to 15% from 2011 to 2016. UPS also holds up well in periods of economic uncertainty, thanks in part to pricing strength and operating execution. Technically, the shares have outperformed over the past several weeks and face a key test at the 200-Day SMA. Against this positive backdrop, UPS is vulnerable to any missteps. With that being said, an earnings miss or unexpected downward adjustment to guidance could have negative consequences for its shares and broader market.

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Source: Earnings Preview For United Parcel Service 3Q