UPS Stock Is Down 57% From Its Record. Is It a Buy Before Its Oct. 27 Report?
Can the delivery giant's leaner network make enough to back a 6.5% yield?
The United Parcel Service (UPS) stock has plummeted 57% from its record high of $232.11 in February 2022, trading around $100 at the time of writing. This significant drop has led to a more attractive dividend yield of approximately 6.5%, based on the company's $1.64 quarterly payout. As UPS is a well-known company, the 6.5% yield is noteworthy and adds value to the stock.
The company will report its third-quarter results on Tuesday, October 27, which will be the first full quarter after UPS completed the volume reduction for its largest customer, Amazon. The 57% decline might appear like a market overreaction; however, it is primarily due to a sharp decline in profits. In 2022, UPS earned $12.94 per share on a non-GAAP basis, whereas in 2026, management anticipates around $7.22 per share, a decline of about 44%.
One factor contributing to the decline is a January 2025 agreement with Amazon to cut its volume by over 50% by the second half of 2026. UPS completed this reduction in June. Despite the stock's sharp decline, earnings have also fallen, making the drop alone not a reason to consider UPS a bargain. Early signs suggest that the slide might have bottomed.
In the second quarter, UPS's U.S. domestic revenue grew by 6% year-over-year, while average daily volume dropped by 3.3%. Revenue per piece increased by 9.3%, and the segment's adjusted operating margin widened to 8% from 7% in the previous quarter. The adjusted operating profit also rose by 21% year-over-year to around $1.2 billion.
A major contributor to this improvement is UPS's network and efficiency programs, which generated around $1.2 billion in benefits from January to June and are expected to provide around $3 billion for the entire year. While the third quarter's performance might not match the second quarter's results, the segment's margin is expected to average around 8.8% over the second half of 2026.
This is a significant improvement from the 6.4% margin reported in the same quarter last year. UPS expects to generate around $5.5 billion of free cash flow for 2026, covering its dividend payments and leaving a small surplus. The valuation of UPS stock looks reasonable, with shares trading at around 13 times earnings expected for 2027, a substantial discount compared to the S&P 500, which trades at about 19 times forward earnings.
Considering UPS's focus on shedding its least profitable volume and improving margins for its largest segment, the stock appears to be worth a look, especially for income investors willing to wait for the turnaround to materialize in cash flow.
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