UPS Shares Drop 12% to Four-Year Low Amid Disappointing Earnings, Short-Term Rebound Possible

Technical Analysis

United Parcel Service, Inc. (UPS) experienced a significant decline of 12.05% in its share price, closing at $127.68 on July 23, 2024. The stock has hit a four-year low, with volumes reaching 3.45 million against an average of 3.84 million, indicating heightened trading activity likely driven by negative sentiment following disappointing earnings reports. The Relative Strength Index (RSI) at 40 suggests that the stock is nearing oversold conditions, which could indicate potential for a short-term rebound. However, the 50-day moving average of $139.63 and the 200-day moving average of $147.93 suggest that the stock is in a significant downtrend. The lack of support levels could lead to further volatility as it grapples with current resistance at $135.65.

Fundamental Analysis

From a fundamental perspective, UPS reported a steep decline in second-quarter profit, which influenced the downward adjustment in outlook. The earnings per share (EPS) stands at $6.13, corresponding to a price-to-earnings (P/E) ratio of 20.44, which is slightly above the industry average. The intrinsic value, based on discounted cash flow (DCF) analysis, is calculated at $157.51, indicating the stock is undervalued at its current price. There remains a consensus amongst analysts for a medium to long-term target price of approximately $175.09, suggesting potential upside if recovery trends materialize.

Recent market sentiment surrounding UPS has shifted towards caution, with earnings results perceived as disappointing and expectations of a slow recovery post-pandemic. The consensus rating presents a balanced outlook, with 1 strong buy, 10 buys, 4 holds, and 2 sells, which suggests potential for price appreciation once confidence returns.

Short-Term Predictions

For the next trading day, July 24, 2024, the stock may see a slight rebound given its oversold status, contingent on market sentiment stabilizing post-earnings. Over the coming week, UPS could remain volatile as it navigates the gap between its intrinsic value and market reactions to macroeconomic factors and recovery signals in the broader shipping sector.

Long-Term Investment Potential

In the context of long-term investment potential, UPS's current price allows for an attractive entry point based on the DCF estimation, although investors should remain cautious due to potential ongoing volatility and an uncertain economic environment. If UPS can manage to stabilize its earnings and restore market confidence, the stock has the potential to appreciate towards its intrinsic value and beyond.

Overall Evaluation

Considering the analysis above, UPS is assessed as a 'Hold' candidate. The stock demonstrates intrinsic value that suggests it is currently undervalued, but the immediate outlook is marred by recent earnings and forward guidance. Given the broad consensus and potential for recovery, maintaining a position while closely monitoring upcoming earnings and market conditions would be prudent.