Even with holiday shopping getting into full swing, United Parcel Service (UPS Stock Quote, Chart, News NYSE:UPS) is in a bit of a funk with its share price skittering along in recent months.
But pullbacks should be your time to buy, says investment manager Brian Acker, who knows a blue chip favourite when he sees one.
“What I would do is ask, is it in the S&P 500? Is it in the S&P 100? Yes, it is, so I would be a buyer here,” says Acker, president and CEO of Acker Finley, in conversation with BNN Bloomberg on Thursday.
Well off its all-time high of $135 per share set in January of 2018, UPS has had a positive 2019, with the stock up 20 per cent year-to-date despite up and down movement over the past few months.
UPS’ profit rose by 14 per cent in its latest quarterly earnings delivered in late October which saw the company generate $18.32 billion in revenue, slightly below the consensus expectation of $18.35 billion. UPS’s share price initially fell on the quarterly report and has been up and down since, currently trading at $115 per share as of Thursday’s close.
“I have a model price of $144.21,” says Acker. “It pays 3.26 per cent, so it’s [a buy] on any dips.”
“You can see that in 2019 we’ve had two substantial dips, so even if it gets around $100 I would be a buyer of UPS. Amazon is threatening their business with deliveries and so on, but again, on pullbacks, I’d be a buyer of the stock,” Acker said.
UPS has invested billions beefing up its infrastructure and network capacity. This holiday season, UPS is forecasting that it will deliver on average 32 million packages a day, up five per cent from last year.
“We are well-prepared this year for peak,” said CEO David Abney to CNBC in November. “We have been planning for it all year. We’ve added over 42 automated buildings over the last two years and we now have the capability to handle over 800,000 packages an hour.”
The upward trend in online shopping is pushing a lot of that growth, not just for UPS but competitor FedEx, and, increasingly, Amazon, which is handling more of its own logistics as time goes by. This summer, FedEx cut ties with the e-commerce giant by opting not to renew its ground-shipping and FedEx Express contracts with Amazon as the latter transforms into a competitor of FedEx and UPS.
“E-commerce certainly has a big effect, and the US economy is doing very well. The five per cent, when you compare it to our average daily volume, we’re actually going to be over 60 per cent of our average daily volume of 20 million,” said Abney.
Earlier this fall, UPS announced an agreement with pharmacy company CVS to develop a drone delivery service for prescription drugs.
As for holiday gift-giving, Abney says the use of drone for front-porch delivery is not too far around the corner.
“From a drone standpoint, we’re still probably another year away before the regulations get completely written. That will be a reality at some point but it will be a complement. We still see a very important role for our UPS driver at the same time,” Abney said.