United Parcel Service's UPS shares have declined 23.5% year to date. UPS’ decline mirrors the Zacks Transportation—Air Freight and Cargo  industry’s 21.1% fall and the 22.2% dip in shares of fellow industry player GXO Logistics GXO. Rival FedEx FDX has seen a steeper year-to-date fall of 26.2%.

YTD Price Comparison

Image Source: Zacks Investment Research

UPS shares have performed even worse in a year’s time, declining 33.7%, steeper than the industry’s 27% fall in the same time period.  GXO Logistics and FedEx have declined 32% and 23.2%, respectively, in the same time frame.

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

Factors Hurting UPS Stock

Demand Slowdown:  Due to the decline in shipping demand, volumes are being hurt. Lackluster volumes have been hurting UPS’ results of late. 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 in global manufacturing activity, has been hurting the demand scenario.

For full-year 2025, on a consolidated basis, UPS 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 is looking to lower its exposure to its largest customer and has decided to cut its business by 50%. Projected revenues for 2025 are below the 2024 actuals of $91.1 billion.

Economic Uncertainty & Tariff Concerns: A rise in inflation over the past couple of months has unsettled markets. 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. Recently, Federal Reserve Chair Jerome Powell warned that trade tensions will raise further fears of inflation, growth slowdown and stagflation.

In fact, UPS’ already bleak guidance for 2025 does 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.

Sustainability of Dividends in Question: In February, UPS management announced a 0.6% hike in its quarterly dividend payout to $1.64 per share (annualized $6.56 per share). No doubt this represents UPS’ shareholder-friendly approach, but questions about the sustainability of its dividend arise. United Parcel Service’s elevated dividend payout ratio (the percentage of net income paid out as dividends) of 84% highlights the concerns 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 made huge dividend payments. Free cash flow has been on a decline since touching a high 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, free cash flow 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. 

Stretched Valuation Picture for UPS Stock: UPS’ stock is expensive, trading at a forward sales multiple of 0.93 — higher than the industrial levels and also fellow industry player GXO Logistics and rival FedEx. UPS stock has a Value Score of C.

UPS’ P/S F12M Vs. Industry, FDX & GXO

Image Source: Zacks Investment Research

Unfavorable Earnings Estimate Movement: In the past 60 days, the Zacks Consensus Estimate for UPS’ first-quarter and second-quarter 2025 earnings and full-year 2025 earnings have moved south.

Image Source: Zacks Investment Research

Not an Opportune Time to Buy UPS Stock

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. Recently, UPS announced that it is gearing up to enhance its export services from Kyushu. To this end, UPS has started to offer faster export services from more cities in Kyushu, providing businesses in the region with quicker and easier access to its global logistics network. UPS’ recent efforts to expand its ground portfolio with two ground shipping options for residential and commercial shippers — UPS Ground Saver and UPS Ground — with freight pricing are praiseworthy.

The company’s cost-containment efforts are also aimed at driving long-term growth. However, despite the positives, the near-term risks are too hard to ignore. 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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

United Parcel Service, Inc. (UPS) : Free Stock Analysis Report

FedEx Corporation (FDX) : Free Stock Analysis Report

GXO Logistics, Inc. (GXO) : Free Stock Analysis Report

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

Zacks Investment Research