How to Trade UPS Earnings

| About: United Parcel (UPS)

By Jonathan Chen

Tomorrow "Brown" reports earnings, and all eyes and ears will be on UPS (NYSE:UPS) to see what the Atlanta, GA-based company has to say about the health of the global economy.

Analysts, investors, and the media will all be listening for any hint on the holiday shipping season, as more packages are sent across using UPS and FedEx (NYSE:FDX) trucks and planes during the fourth quarter, thanks in part to the holidays.

Analysts are looking for earnings of $1.05 per share on $13.17 in revenues. Guidance for the fourth quarter is expected to be $1.25 per share on $14.46 in revenues.

After FedEx announced this morning that it would be hiring 20,000 additional seasonal workers to help with the increased in online shopping, analysts are starting to come around to the fact that the global, and in turn, U.S. economy, is healthier than many expected. This should bode well for both FedEx, and UPS, the two largest shipping and logistics companies in the world.

"The economy right now is not as bad as some people had feared, though I wouldn't say it's going great guns, and this is also an indication that a lot of retailers kept inventories low and the consumer is not totally in the dumps," said Dahlman Rose & Co. analyst Jason Seidl in comments captured by Reuters.

Last year, during "peak season", FedEx hired 17,000 workers, so to increase the amount of workers by 16% year-over-year is a healthy sign. Last week, FedEx CEO Fred Smith was slightly more bullish on the economy than some had expected. Smith said that retailers are indicating a "good" Christmas season, and economic growth in the third quarter might have been 2.5%. On Thursday, we get an advance look at third quarter GDP, and economists are expecting a reading of 2.3%.

With Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) announcing new products in the fourth quarter, the iPhone 4S, and the Kindle Fire, respectively, this should benefit UPS. Demand for these two products is exceedingly strong. Apple has already said it sold over 4 million versions of the iPhone. It did not break down how many it sold online however, but that would go directly to benefiting companies like FedEx and UPS.

UPS trades at less than 15 times 2012 earnings, and sports a 3% dividend yield.

If UPS is able to deliver strong results and forward guidance in the morning, then perhaps "brown" can not only deliver your packages, but some profits for your portfolio as well.



Traders who believe that UPS will report strong earnings and guidance might want to consider the following trades:

  • Providing oil does not get too high, UPS and FedEx might ramp up into the holiday season, as traders bet on revenue growth.


Traders who believe that oil, now over $90, will go much higher may consider alternate positions:

  • If oil gets significantly higher than $90 per barrel, it could impact UPS earnings. Traders might want to short if oil starts to move sharply higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.