UPS shares pull back on weak post-covid outlook: time to buy?

United Parcel Services Inc. (NYSE:UPS) shares on Wednesday pulled back to trade at about $197.98 per share before recovering later to close at $201.05. The Seattle, WA-based courier services provider issued revenue guidance of $98 billion to $102 billion for the 2023 fiscal year. It reflects a growth of 12.7% to 13.7%. Last quarter, revenue grew by 27% Q/Q. UPS has rallied more than 23% this year. It is possible that the current price already factors in the expected top-line growth. 

UPS stock price may be pricing in top-line growth projection

The company reported revenue of $84.6 billion last year. The current projections imply a compounded annual top-line growth of about 10%. The UPS stock price of about $201.26 prices the company’s shares at a price-sales ratio of 1.97. Close peer FedEx Corp’s (NYSE:FDX) equivalent of 1.00 is lower.

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It explains why the market thinks current share price prices in the revenue projections. According to analyst estimates, UPS earnings per share will decline by 69.80% this year. Next year’s projected earnings growth rate is about 4%, while the average for the next five years is 12.43%.

The company’s long-term outlook remains promising. But based on current valuation, the stock looks relatively expensive to close peers. FedEx’s forward 12-month P/E ratio of 14.59 is more attractive to investors than UPS’s equivalent of 17.70.

Technical overview

Technically, UPS stock appears to be trading within an ascending channel formation in the daily chart. UPS share price recently pulled back to move closer to the oversold region of the 14-day RSI. However, the stock seems to be holding firm just above the 100-day moving average. 

The bulls will be encouraged by the ascending trend formation. They will target profits at around $220.03 and $240.77. On the other hand, the bears will be motivated by the recent pullback. They will target profits at about $180.36 and $160.08.

Bottom line: UPS pullback may not be over

UPS shares have pulled back after the company’s weak post-covid guidance. Investors could be encouraged to buy the pullback ahead of a subsequent rebound. However, it looks like UPS stock could fall further based on its valuation relative to close peer FedEx. Therefore, it is best to observe the stock’s performance for the next few days or weeks before buying. On the other hand, bearish investors can open short positions before a significant rebound.