Monday, October 20, 2014

Why UPS Stock Could Fall

United Parcel Service (NYSE: UPS  ) investors have watched their stock decline nearly 6% this year. Essentially, a poor performance during the winter (primarily due to the harsh weather and stronger-than-expected peak demand in the holiday season) has been followed by the need for increased investment. As such, the latest results saw the company lowering full-year earnings expectations. All of which raises some questions as to the future growth rate of UPS. Let's take a look at the bearish case for the company and discuss some issues management needs to deal with.

Demand shifting toward lower-yield packages?

As I've discussed in previous articles, UPS is seeing two significant shifts in end demand. As with rival package deliverer FedEx, its customers are shifting toward slower and less expensive ground-based services, while the continued strong growth of e-commerce means UPS is delivering proportionately more lighter-weight packages. Both shifts are not good news for the company's yield per package.


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