The iconic shipping company hasn't given investors much to celebrate recently. But headwinds are turning to tailwinds. By Al Root
United Parcel Service is a ubiquitous, 118-year-old icon. Every American is familiar with its brown boxy trucks, uniformed drivers, and in-store staff taking care of customers at some 5,800 locations in the U.S. and Canada.
Investors might not feel as confident about the company as a frazzled civilian hoping to ship a birthday present across the country. There's a good reason for that. UPS just hasn't been a good investment for years, struggling against what feels like an endless series of headwinds that management has struggled to overcome.
It hasn't been for lack of trying, and 2026 should be the year that improvement efforts finally begin to take off. As some headwinds give way to tailwinds, UPS' low valuation and generous dividend yield should attract investors. With strong business execution, shareholders could see a 30% gain in UPS over the coming 12 months and more upside after that.
Any gains would be welcome. Shares are down about 40% over the past five years, trailing the S&P 500 index's 68% gain and peer FedEx's 30% rise.
A bevy of issues have contributed to the underperformance. For starters, there was the postpandemic shipping boom and bust. The combined sales of UPS and FedEx peaked in 2022 at more than $190 billion, while their combined operating profit was north of $20 billion, as cooped-up Americans shifted to online shopping. Then came the end of the Covid-era restrictions, helping usher in a brutal three-year freight recession that sent 2025 combined sales down 7% from 2022 levels. Operating profits dropped 27%.
If it were only weak industry fundamentals, UPS might have managed. But there were also the 2023 labor negotiations, which resulted in significant pay raises for workers seeking to offset postpandemic inflation.
Amazon.com became a problem, too, as its portion of UPS' domestic shipment business grew to more than 15%. The increase in volume was great, but profitability was weak. As a result, UPS began to significantly reduce its Amazon business starting in 2025. The decision was sound from a business perspective but painful for revenue and profit in the short term. Taking that much volume out of a network with high fixed costs hurts. Operating profit margins in 2025, at less than 10%, were down by four percentage points from peak 2022 levels.
Then there were President Donald Trump's 2025 tariffs, which increased shipping costs and complexity and further depressed industry volumes.
All of the headwinds took a toll on UPS' income statement. Earnings per share in 2022 were almost $13. With less business, higher costs, and excess capacity, EPS dropped to $7.16 in 2025 -- and investors aren't sure if the bottom is in.
"UPS is one of the most controversial stocks," says Stephanie Link, chief investment strategist and equity portfolio manager at Hightower Advisors. "I like the risk/reward, but patience is important; execution remains key."
That means shrinking the asset base to match demand in a strategy the company calls "better, not bigger." Yes, that means painful layoffs at all levels of the organization. Since the end of 2024, UPS has announced more than 60,000 job reductions. More are still to come. UPS recently launched a "drive choice" program that aims to buy out senior drivers to accelerate workforce reductions. "Better, not bigger" also means investing in higher-margin customers, including small and medium-size companies, as well as healthcare businesses and specialty shipping. The company completed acquisitions of Frigo-Trans and Andlauer Healthcare Group in 2025, which expanded its cold chain shipping capabilities.
While some headwinds, such as lower Amazon volumes, will remain for a few more quarters, investors should start to see tangible benefits in the second half of the year, says Goldman Sachs analyst Jordan Alliger, adding that margins could bottom in the first quarter of 2026. That's a good time to buy, he says, "when margin is as bad as can be." Alliger rates shares Buy and has a $125 price target, up 27% from Wednesday's close of $98.37.
UPS also offers investors a margin of safety. Shares have rarely been this cheap, trading for about 13.4 times earnings expected over the coming 12 months. That isn't the lowest price/earnings ratio in the past decade, but it's close. What's more, UPS stock trades for about 82% of FedEx's 16.3 multiple, the lowest relative multiple of the past decade, according to FactSet.
UPS' dividend yield of almost 7% provides some cushion while investors wait for a turnaround. That's one of the largest dividend yields in the S&P 500. High yields aren't always a good thing and can signal to investors that something is wrong. But UPS is expected to generate sufficient earnings and free cash flow to maintain the $6.56 annual per share payout.
Investors sensed some improvement was afoot. UPS stock was up 17% year to date before fighting broke out in Iran. Shares have essentially given that all back amid rising oil prices, which can affect shipping costs and overall demand.
"The somewhat choppy share price performance highlights a less-discussed positive attribute to UPS shares: It's still a pretty hated stock," says Jefferies analyst Stephanie Moore, adding that while investors have become more hopeful for a freight recovery in 2026, shares still trade at a depressed valuation.
She rates the stock Buy and has a $135 price target, up more than 35% from recent levels.
The low valuation "just reinforces the opportunity for long-term investors," Moore adds. "In baseball terms, when asked what inning is UPS' improvement story in, we would answer we're still in spring training and haven't even seen the first inning yet."
When things finally do turn around, there will be a lot of game left for UPS shares.
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March 27, 2026 21:31 ET (01:31 GMT)
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