Bearish Crude Oil Has Lifted United Parcel Service, Inc., But Can It Continue?
United Parcel Service, Inc. (NYSE: UPS) shares have risen from $97.95 on September 2 to nearly $100 by the end of last week. During that same time, crude oil futures fell more than 3 percentage points.
With technicians calling for crude to trade down to the $86.13-88.14 range in the short-term and as low as $75 in the intermediate term, will UPS continue to benefit?
What The Bulls See...
• A company with some cheap valuation metrics, including a price-to-sales at 1.57 and an enterprise value about 8 percent greater than its market capitalization.
• More than $3.5 billion in annual levered free cash flow.
• A healthy 2.8 percent dividend.
• Crude oil potentially moving down to the mid-$80s and acting as a tailwind for the company.
What The Bears See...
• A richly valued company sporting a price-to-book ratio around 16 and a price-to-earnings ratio more than 17.
• A balance sheet that is less than pristine with a debt-to-equity ratio of more than 200 percent.
Technicians note UPS appears to be on track to at least test resistance at $102.66. From there, they think the stock may head back down for a test of the low-$90s.
Falling crude oil prices in the short term should translate to lower fuel costs for UPS, which may help to boost the company's bottom line.
Of course, there's no guarantee. Companies like UPS tend to react quickly in the face of rising fuel prices and are slower to adjust prices to a lower level when prices are declining.
Assuming the technicians are correct in their call for lower crude prices in the short term, UPS should, in theory, have little trouble in making it up to the $102.66 resistance.
If oil bounces from its projected support in the mid-$80s, UPS may then trade back down to the mid-$90s as well.
Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.