Buy the Dip in This Logistics Leader Before Its Next Stage of Compound Growth Kicks In

UPS (NYSE:UPS) experienced enough A soak over the last few years. Shares of the global logistics giant are currently down more than 50% from their peak a few years ago. As a result, its dividend yield jumped to 6.5%. It faced numerous headwinds, including high labor costs, tariffs, weaker market conditions and a strategic decision to reduce its dependence on its main customer, Amazon.

However, even though UPS shares are down, the logistics The leader appears to be on the verge of turning things around. So now is the perfect time to buy the dip before a reacceleration begins.

UPS has realized that not all volume is worth its cost. As a result, the company made a strategic decision earlier this year to reduce the volumes it ships for Amazon by more than 50% by the end of next year. While Amazon contributes around 20-25% of its volume, it only contributed around 11% of its revenue last year. Most volumes shipped are destined for the summit e-commerce business have low profit margins.

As part of the transformational shift away from Amazon, UPS is experiencing major restructuring. The goal is to cut costs by $3.5 billion by the end of this year by reducing its workforce and closing sites.

The company is also investing to grow its most profitable business segments, including health care logistics. It completed its $1.6 billion acquisition of Andlauer Healthcare Group in November to improve its complex healthcare logistics operations.

Amazon’s slow exit will continue to negatively impact the company’s bottom line. Its revenue fell 3.7% in the third quarter while its adjusted earnings per share fell 1.1%. However, the company is starting to see underlying progress. Its U.S. revenue per piece increased 9.8% in the quarter, while its domestic operating margin increased slightly.

Meanwhile, some of the other obstacles the company faces appear to be slowly fading. Rival FedEx reported better-than-expected results for its fiscal second quarter, despite continued trade uncertainty and weakness in shipping markets. The company also increased its guidance for the fiscal year. It now expects sales growth of 5% to 6% (from 4% to 6%) and adjusted earnings of $17.80 to $19 per share (raising the low end of $17.20 per share). UPS also provided investors with a better-than-expected outlook for the fourth quarter.