UPS is a hold; no urgency to buy due to persistent headwinds and fair-to-slightly-undervalued but not cheap valuation.

After several quarters of persistent headwinds, UPS gave investors a few things to be excited about. First of all, they reported a 7.6% year-over-year revenue growth rate.

That's impressive amid a significant macroeconomic headwind backdrop that's decreasing the number of units shipped and increasing the company's costs. Speaking of cost, the company is increasing automation. 68% of the company's warehouses or products flowing through the company's warehouses are now going through automated facilities, which the management team also highlighted is 28% lower in terms of the cost per piece compared to non-automated facilities.

And finally, the company said the China-to-US trade lane returned to year-over-year growth, finalizing a stabilization in that relationship.

Remember, the United States placed the greatest number in terms of the tariff rate against China, and so of course that has the impact of reducing the number of units being shipped to the United States from China, and so that was a significant positive as well.

So, does all of this make UPS stock a buying opportunity? So, you can see those headwinds when you look at UPS revenue over a trailing 12-month period and we look back over a decade.

Its revenues peaked at over a hundred billion dollars in the trailing 12-month period in about 2023.

Since then, there's been a lot that's gone on that's lowered the company's revenue. But some of it is actually positive for the company in terms of de-risking the business. And that's the relationship with Amazon, whereas it used to incorporate a much larger percent of its overall revenue, it's now less than double digits of its overall revenue.

So, that's a lower revenue baseline, but it also reduces one of its customers that exercised strong negotiating power against UPS, lowered the profit per piece shipped, and therefore now the company is extending more offers, more service to customers that are more lucrative with less negotiating power.

I mentioned tariffs earlier, and that's been a significant headwind to UPS. Transporting products between countries is a big business for UPS, and transporting products from outside the United States into the United States is also a big business for UPS.

So, that the reduction of international trade has been a headwind to be sure.

And then finally, the war in Iran caused oil prices to spike, and when you're operating a logistics and delivery network, that's going to hurt your bottom line. Your costs are going to increase.

So, all of these have been headwinds for UPS, but I will say I think the management team has done a phenomenal job in adjusting to and preparing for these macroeconomic impacts.

They've been great. They right-sized the business, reduced the capacity be available in the network, and therefore reduced the fixed and variable operating expenses in preparation for this situation.

They weren't caught off guard. They planned well, and they foresaw this situation, and they're prepared for it.

The operating profit margin, even though it was elevated in the most recent quarter, if we look back over a trailing 12-month period, it was 9.3%. That's on an upward trajectory.

It's improving. It likely bottomed out at around 8.5% and it's good to see the business's profit margin improving.

Longer term, this has never been a very lucrative business when measuring with an operating margin. It is a heavy capital intensive industry. Lots of fixed assets, lots of fixed costs, lots of variable costs as well.

Operating profit margins at 15% would be incredible for UPS. Right now, it's at about 9%. It's reasonable to assume that the company can bring this upwards in the low double digits, but anything above 15% seems unrealistic at this moment.

So, partly as a result of those headwinds I discussed, the UPS stock had been trading near its lowest levels when measuring on a forward price-to-earnings ratio. It's trading at a forward PE of 13, which is near the lower end of where the stock has traded for according to this valuation metric.

Prior to 2026, this stock historically traded at a forward PE ratio between 16 and 23. And in 2026, it's been trading at a range between 15 and 11. So, there's been a significant re-rating lower of this business as a result of those headwinds I discussed earlier.

I revised my estimates for how much free cash flow I expect this business will generate between now and the very long run and my revisions were slightly lower. So, the revisions to my estimates decreased slightly.

I previously had the fair value estimate of UPS stock at about $101 per share. I lowered that to about $97 per share.

Compared to the current market price of $106, I would say the stock looks fairly valued or you could even say it looks slightly undervalued when looking at the valuation comprehensively including all the valuation metrics you could consider when evaluating this business.

So, given the headwinds it still faces and a valuation that's not extremely cheap, I don't see any urgency to buy UPS stock right now.

So, I'm reiterating my hold rating on this business which I've had it rated as a hold all year long here in 2026. I'll reiterate that rating today with a relatively low conviction, low confidence level because so much of the business and its current headwinds or macroeconomic and we have leaders in place today that are extremely volatile changing fiscal policy, updating fiscal policy in ways that's hard to predict.