UPS stock has been trying to recover after coming out with disappointing earnings in late July. Will the current upside be sustainable or is it just a bounce in a bear market?
United Parcel Service UPS shares have been climbing gradually over the last few weeks following a nasty sell-off related to their most recent earnings report.
The stock's rise of late may be at least in part attributable to the downward pressure on crude oil prices – which can obviously have a beneficial effect on all transportation issues that rely on gas for their fleets. How much more will continued downward pressure help UPS counteract the influences on stop-and-start global growth?
What The Bulls Are Seeing…
What the bulls see in UPS is a company with some cheap valuation metrics (price-to-sales at 1.57 and an enterprise value greater than the market capitalization of the stock by about eight percent), strong cash flow and that pays a healthy 2.68 percent dividend. The possibility of crude oil heading down to the mid-$80s per barrel is another arrow in the bulls' quiver.
Technically, UPS is right in the middle of no-man's land. However, the bulls would say that at this price, there is a decent chance for an upside trade up to $102.66 before the stock heads back down for a test of the low-$90s. Let's see what the bears say to that position…
What The Bears Are Seeing In UPS…
The bears in UPS stock point out that the company is sporting some rich valuation metrics (to counter the bulls' cheap metrics) in that the price-to-book ratio is around 16 and the price-to-earnings ratio is over 17 while the best estimate for next year's earnings growth is only 15 percent (while next year's revenue growth expectations are only in the single digits). They also point out that UPS's balance sheet is less than pristine with a debt-to-equity ratio of over 200 percent.
Technically, the stock of UPS may cause the bears some aggravation in the short-term with what could be a rise up to just north of $100 per share. However, the technical crowd theorizes that such a move may very well still be followed by a move back down to the low $90s for the stock.
Who Will Win The Battle?
The technicians say that the bulls can declare partial victory if they can close UPS stock above the pre-earnings-disaster close of $102.66 and full victory if the stock breaks to new highs.
They note that the bears remain in the driver's seat unless and until the $102.66 level is breached on the upside and that their position will be solidified with a break of support at the August 8 low of $94.87. Right now, there could be a little morsel for the bulls to taste in the form of a move up to resistance at $102.66 – especially if crude oil remains under serious pressure.
If crude turns higher, though, that tailwind will be gone and such a rise in the stock's price may not come to fruition.
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