United Parcel Service UPS is currently mired in multiple headwinds ranging from tariff-induced economic uncertainty, inflationary pressure, supply-chain disruptions, weak freight demand and changes in the geopolitical landscape.

The current administration is focused on protectionism that restricts international trade to help domestic industries. Tariff tensions are heating up, with new tariffs levied by the U.S. federal government, which has impacted the United States’ biggest trading partners — Canada, Mexico and China. With retaliatory tariffs against the United States, trade tensions are escalating.

Of late, U.S. markets have been characterized by a high degree of volatility amid uncertainty surrounding U.S. trade policy and growing anxiety about a slowing U.S. economy. Hefty tariffs on the nation’s biggest trading partners have given rise to fears of economic slowdown. This trade war is expected to result in a further increase in volatility and uncertainty going forward.

In view of the darkening clouds on the horizon, analysts are turning bearish on UPS as highlighted by the fact that in the past 60 days, earnings per share estimates for UPS have moved south for the first and second quarters of 2025 and the full years 2025 and 2026.

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Disappointing Price Performance for UPS Stock

The tariff-induced fears are a recent phenomenon. However, UPS shares have been struggling for quite some time, declining 23% in a year. This substantial double-digit decline compares unfavorably to that of the Zacks Transportation—Air Freight and Cargo industry as well as rival FedEx FDX. United Parcel Service has been suffering from revenue weakness for quite a while as geopolitical uncertainty and high inflation continue to hurt consumer sentiment and growth expectations.

1-Year Price Comparison

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The question that, however, arises is whether this sustained selloff in UPS shares presents a buying opportunity. Let’s delve deeper to answer the question.

UPS Hikes Dividend: Is it Sustainable?

In February, United Parcel Service’s management announced a 0.6% hike in its quarterly dividend payout. As a result, UPS’ current quarterly dividend is up by 1 cent to $1.64 per share (annualized $6.56 per share). The hiked dividend was paid out on March 6, 2025, to shareholders of record as of Feb. 18.

No doubt this represents UPS’ shareholder-friendly approach, but the question of the dividend’s sustainability does arise. United Parcel Service’s elevated dividend payout ratio (the percentage of net income paid out as dividends) of 84% highlights the concern associated with its ability to maintain dividend payouts over the long term.

We remind investors, that in the early 2020s when UPS’ business was flourishing driven by exponential e-commerce growth during the peak pandemic period, the company resorted to making huge dividend payments. During the pandemic, UPS generated more than enough free cash flow to cover the elevated dividend payments. Free cash flow has been on a decline after touching the highs of $9 billion in 2022.

Currently, UPS' elevated dividend payout is hurting its operational flexibility, with free cash flow barely covering the dividend. At 2024-end, the free cash flow generated was $6.3 billion, not much above its dividend payments of $5.4 billion. United Parcel Service expects to generate free cash flow of around $5.7 billion in 2025. Dividend payments are expected to be roughly $5.5 billion. UPS’ most recent dividend hike was only 0.6%, way below the hikes announced in the early 2020s.

UPS’ Bleak Revenue Outlook for 2025 Highlights Woes

UPS expects average daily volumes to decrease 8.5% in 2025 from 2024 actuals. The slowdown in online sales in the United States, apart from the softness of global manufacturing activity, has been hurting the demand scenario. 

For 2025, on a consolidated basis, United Parcel Service expects revenues to be $89 billion, way below the Zacks Consensus Estimate of $94.6 billion at the time of the fourth-quarter 2024 earnings release. UPS expects to lower its volumes with its largest customer, Amazon.com AMZN by more than 50% by June 2026. This bleak guidance did not include any significant impacts from tariff policies. Given the current tariff-related tensions, a further cut in guidance from UPS cannot be ruled out.

UPS’ Valuation is Stretched

UPS’ stock remains expensive, trading at a forward sales multiple of 1.14 — higher than its peer group. The stock has a Value Score of C.

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Don’t Buy UPS Now: Near-Term Headwinds are Hard to Ignore

UPS’ expansion efforts look good. In a bid to expand its network, United Parcel Service announced in 2024 that it would acquire Estafeta, a Mexican express delivery company. The company’s cost containment efforts are too aimed at driving long-term growth. However, near-term risks outweigh the positives. Tariff-related uncertainty and concerns related to dividend sustainability represent major headwinds. UPS’ valuation too is not tempting. Given these challenges, buying the stock, despite the significant price decline, seems premature now. Instead, one should stay on the sidelines and wait for clearer signs of stability.

UPS currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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