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What’s next for the UPS stock after its Q3 update?

United Parcel Service Inc (NYSE: UPS) is a “buy” now that it’s reported strong results for its fiscal third quarter, says Degas Wright. He’s the Founder and Chief Executive of Decatur Capital Management.

UPS is doing way better than FedEx

More importantly, the package delivery company reiterated its full-year guidance as well, suggesting it was winning at managing costs amidst a challenging macro landscape.

In comparison, peer FedEx last month had painted a rather gruesome picture of what its 2023 would look like (link). Recommending buying UPS stock this afternoon on CNBC’s “Halftime Report”, Wright said:

UPS focuses on residential, small-business mail with a low-cost leadership, but differentiated with the quality customer service. Revenue per package [topped estimates], up 7.0% year-on-year. So, UPS is doing a great job.

United Parcel Service attributed its better-than-expected quarterly profit also to a healthy consumer (U.S) and a resilient economy.

More reasons to invest in UPS stock

Its revenue was slightly shy of expectations in Q3 but Wright likes it more for the dividend.

It’s returning about $5.0 billion through dividend payments and $3.0 billion through share buybacks, which comes out to be about 3.6% dividend yield. So, this is a good time to be looking at UPS.

Another reason cited for the constructive view was “valuation”. UPS stock is currently trading at about 10 times EBITDA versus its ten-year average of roughly 15 times.

United Parcel Service is looking at $102 billion in revenue this year and a more than 30% return (adjusted) on invested capital. It now plans on spending $5.0 billion in 2022, versus $5.5 billion it had guided for earlier.

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