Should You Buy the Dip on UPS Stock?

United Parcel Service (NYSE:UPS) fell almost 17% in pre-market trading and the decline has continued after a mixed Q4 report and the company reducing its 2025 revenue outlook. Moreover, there have been a lot more developments surrounding UPS that has been leading it to continuously erase the gains it has made in the COVID era. Here’s everything you need to know here.

UPS Slashed Amazon Value

UPS announced its plans to cut package volumes from Amazon (NASDAQ:AMZN). This is the company’s largest customer and contributed 11.8% of its 2023 revenue. UPS will be reducing Amazon shipments by 50% by late 2026 to prioritize higher-margin clients. However, this is a pretty risky bet and investors are fearful of losing this revenue. Amazon is already a solid customer for UPS, and there’s little transparency about where United Parcel Service will be replacing this revenue. There’s no other customer that can replace Amazon and do so with higher margins for UPS.

In addition. Amazon’s in-house logistics could eventually replace that of UPS. The revenue reduction could be far higher than 50% in the long run.

UPS’ 2025 Guidance Was Disappointing

United Parcel Service projected 2025 revenue at $89 billion. This is far below the $94.8 billion that Wall Street expected. It expects an operating margin of 10.8%, but that top-line decline is going to hit earnings regardless of that small margin expansion.

UPS is now taking cost-cutting measures. It has a $1 billion “efficiency reimagined” program. This includes layoffs.

UPS’ Q4 Earnings Weren’t That Good

UPS reported revenue of $25.3 billion. Revenue grew by just 1.5% year-over-year and missed estimates of $25.42 billion.

Adjusted EPS of $2.75 beat analyst expectations of $2.53. GAAP results included a $639 million charge from pension costs and asset impairments.

How Wall Street Reacted

The stock tumbled immediately by around 15%. Some analysts still have high price targets on the stock, but these targets likely likely to be trimmed down over the coming weeks due to the continued weakness here. Evercore ISI called the Amazon move “unexpected” and an “acceleration of the glide down of this business that has long represented a tail risk.”

Not only that, there’s chatter about FedEx (NYSE:FDX) and other regional carriers absorbing Amazon’s shipments. The market is saturated with retailers like Temu and Shein. That makes it much harder for UPS to find “higher-margin” clients. As such, there isn’t much optimism to carry this stock higher.

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