Prediction: UPS Stock Might Have Further to Fall

Core Viewpoint - UPS is expected to face challenges in its upcoming earnings report, with more potential for negative news than positive news, but it remains a stock to watch for long-term investors looking for buying opportunities on dips [1]. Financial Performance and Guidance - UPS has a poor track record of meeting its full-year guidance targets, having failed to do so for the last three years, which raises concerns about its current guidance [2][5]. - The company does not provide specific earnings per share guidance but offers revenue and adjusted operating profit margin outlooks, which have also been missed in the past three years [3]. - Historical performance shows that UPS's actual revenue and adjusted operating profit have consistently fallen short of initial guidance, with significant discrepancies noted in 2022 and 2023 [4]. Economic and Industry Context - The logistics sector is facing pressures from a slowing U.S. economy, with other industrial companies like 3M and FedEx also reporting weakened demand and cutting their revenue guidance [6][7]. - A decline in business-to-business (B2B) deliveries, which are typically higher-margin, poses a risk to UPS's profitability [7]. - The company is also dealing with overcapacity issues stemming from pandemic-related shipping booms and a labor dispute that has led customers to seek alternative delivery options [8]. Dividend and Cash Flow Concerns - UPS's management has projected free cash flow of $5.7 billion against total dividend payouts of$5.5 billion for 2025, raising questions about the sustainability of its dividend amid potential cash flow shortfalls [10][11]. - There is a possibility that UPS may need to cut its dividend if free cash flow does not meet expectations, which could negatively impact investor sentiment [11]. Long-term Outlook - Despite near-term risks, UPS may still be an attractive long-term investment due to its strategic shift away from low-margin Amazon deliveries and focus on higher-margin sectors like healthcare and small businesses [12]. - A potential dividend cut could serve as a catalyst for resetting investor expectations, allowing the company to better navigate upcoming challenges while maintaining long-term growth prospects [13].