United Parcel Service, Inc. (UPS) is trading higher by nearly 4% in Tuesday's pre-market after beating fourth quarter 2020 earnings estimates by wide margins. The company posted a profit of $2.66 per share during the quarter, $0.52 better than expectations, while revenue rose 21.0% year over year to $24.9 billion, much better than the $22.8 billion consensus. No 2021 guidance was offered due to uncertainty as a result of the pandemic, and no share buybacks are planned for the year.

Key Takeaways

  • UPS beat fourth quarter top- and bottom-line estimates and is trading higher on Tuesday.
  • The stock has outperformed rival FedEx Corporation (FDX) on a long-term basis.
  • It will take time to rebuild UPS sponsorship after two months of aggressive profit-taking.

The packaging giant trades at a premium to FedEx and has outperformed its shipping rival for several years. FedEx stock posted stronger 2020 returns but failed a breakout above the 2018 high in December, while UPS continues to trade close to an all-time high. Both companies should perform well in 2021 as long as the vaccine rollout picks up steam, allowing economic growth to surge in the second half of the year.

UPS is also much larger than its rival, sporting a market cap of $134 billion compared to FedEx's $62 billion. However, FedEx has gotten most of the press in the past few years, primarily due to its well-documented conflict with Amazon.com, Inc. (AMZN). However, those companies buried the hatchet in 2020 when the e-commerce juggernaut decided to abandon plans for a huge expansion in in-house delivery services.

Wall Street consensus on UPS stock has barely budged in the past three months, maintaining an "Overweight" rating based upon 12 "Buy," 2 "Overweight," 7 "Hold," and 1 "Underweight" recommendation. Oddly, four analysts still recommend that shareholders close positions and move to the sidelines. Price targets currently range from a low of $74 to a Street-high $210, while the stock is set to open Tuesday's session about $20 below the median $183 target. This humble placement could support solid upside in coming weeks.

Tip

Market capitalization, or "market cap," is the aggregate market value of a company represented in dollar amount. Since it represents the "market" value of a company, it is computed based on the current market price (CMP) of its shares and the total number of outstanding shares, or the company's "float." Market cap is also used to compare and categorize the size of companies among investors and analysts.

UPS Weekly Chart (2013 – 2021)

Chart showing the share price performance of United Parcel Service, Inc. (UPS)

TradingView.com

The stock broke out above the 2004 high at $89.11 in 2013 and entered a choppy uptrend that topped out above $114 in the first quarter of 2015. It sold off to a two-and-a-half-year low at the start of 2016 and turned higher, failing a November breakout in January 2017. A second breakout attempt in the first quarter of 2018 suffered a similar fate, triggering a shareholder exodus that carved lower highs and lower lows into March 2020's seven-year low.

A vertical bounce reached the 2018 high at $135.53 in August, yielding an immediate breakout that posted an all-time high at $178.01 in October. The stock sold off into the $150s a few weeks later, establishing range support that has now been tested successfully. However, the pre-market uptick is already approaching resistance at the 50-day exponential moving average (EMA), perhaps limiting gains in coming sessions. That wouldn't be surprising, with accumulation dropping to six-month lows ahead of the news. 

The weekly stochastic oscillator reached a deeply oversold technical reading prior to the release, while this morning's strong uptick is likely to trigger a bullish crossover that predicts 6 to 12 weeks of relative strength. That might not be enough for a breakout to new highs but could support a buying wave into December resistance in the $170s. A second look at accumulation at that time could offer actionable information about longer-term price direction.

Tip

Oversold refers to a condition where an asset has traded lower in price and has the potential for a price bounce. An oversold condition can last for a long time, and therefore being oversold does not mean a price rally will come soon, or at all. Many technical indicators identify oversold and overbought levels. These indicators base their assessment on where the price is currently trading relative to prior prices.

The Bottom Line

UPS is trading higher in Tuesday's pre-market after beating fourth quarter 2020 top- and bottom-line estimates by wide margins.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.