United Parcel (UPS) Faces Multiple Headwinds: Time To Sell?

On Sep 28, 2016, we issued an updated research report on United Parcel Service, Inc. (NYSE:UPS) . The stock currently carries a Zacks Rank #4 (Sell), indicating that it will underperform the broader market in the near term.

We expect United Parcel's third-quarter results, which are scheduled to be released on Oct 27, to be hurt by adverse foreign currency movements and lower fuel surcharges. These negatives had affected the company's second-quarter results as well. Notably, the Zacks Consensus Estimate for the third quarter has moved down by 4 cents to $1.43 per share over the last 90 days.

The company derives a significant portion of its revenues from international operations, including business in the emerging markets. Given that these markets are more volatile than the developed ones, any downturn in these markets could reduce the company’s revenues and adversely impact its financial position. The company is exposed to challenges associated with foreign exchange fluctuations, especially due to Brexit. Regulatory risks add to the woes.

Moreover, the company faces intense competition from the likes of FedEx Corporation (NYSE:FDX) . Earlier this year, FedEx completed the acquisition of TNT Express, thereby strengthening its European presence and intensifying competition for United Parcel in Europe, where it is a major player.

In view of the above headwinds and the possibility of a lackluster third quarter, we see little reason for investors to hold on to the stock at current levels.

Stocks Worth Considering

Not all stocks, however, are expected to underperform. Investors may consider players from the broader transportation space, such as Air Transport Services Group (NASDAQ:ATSG) and Copa Holdings SA (NYSE:CPA) . Copa Holdings sports a Zacks Rank #1 (Strong Buy) while Air Transport Services carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Panama City-based Copa Holdings has been an impressive performer this year with its shares surging more than 86%, year to date. The carrier has a robust earnings history. It outpaced the Zacks Consensus Estimate in three of the last four quarters with an average beat of 37.04%. In fact, the Zacks Consensus Estimate for 2016 has climbed 10 cents to $4.55 per share over the last 30 days.

The 2016 Zacks Consensus Estimate for earnings has increased by 9 cents to 69 cents per share for the Wilmington, Ohio- based Air Transport Services Group.

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