Bearish Crude Oil Has Lifted UPS Recently: Can It Continue?

United Parcel Service, Inc. 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.

• Over $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 over 17.

• A balance sheet that is less than pristine with a debt-to-equity ratio of over 200 percent.

Technical Take...

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.

Overall...

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.

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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.