United Parcel Service’s (UPS) strong operating leverage is driving impressive earnings growth.
The company is expected to grow its earnings per share 41% in 2010, 20% in 2011, and 13.0% per year for the next three to five years. The stock also offers investors a dividend yield of 2.8%.
This Zacks #1 Rank stock trades at 20.6x 2010 consensus EPS estimates and 17.2x 2011 consensus EPS estimates.
Business
United Parcel Service provides transportation, logistics, and financial services. The company operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight.
Delivering packages around the globe is an economically-sensitive business. So, increasing global economic activity is driving the company’s revenue growth.
In addition, UPS has continued to focus on streamlining its costs and reducing its cost structure. That combined with its solid top-line growth is enabling the company to produce significant operating leverage and impressive earnings growth.
First-Quarter Results
On April 15, the company reported first-quarter results. Revenues climbed 7% to $11.7 billion. EPS jumped 37% to $0.71, beating the Zacks Consensus Estimate by 2 cents.
Outlook
UPS expects first-quarter trends to continue through 2010, which means solid revenue growth and additional operating leverage. The company raised its 2010 adjusted EPS guidance to $3.05-$3.30, which represents annual growth of 32%-42%.
Estimates Moving Higher
After UPS reported better-than-expected Q1 results, analysts lifted their estimates for this year and next. The Zacks Consensus for 2010 is up 34 cents, or 11.6%, to $3.26, and the Zacks Consensus for 2011 is up 34 cents, or 9.5%, to $3.91.
The Chart
UPS shares are up over 40% since bottoming on July 7, 2009. The shares experienced a 10% pullback during the February sell-off. On April 15, the stock gapped higher on better-than-expected results and optimistic guidance for the rest of the year. In the last week, the stock has dropped about $3 from its 52-week, due to general market weakness.
