Growth & Income: United Parcel Service (UPS)

United Parcel Service (UPS) is levered to a growing economy and offers a decent dividend yield to boot.

Growth and Income

The company is expected to grow its EPS 42% in 2010, 20% in 2011, and 13% over the long term. It also has a dividend yield of 3.1%.

UPS is a Zacks #2 Rank that trades at 18.2x 2010 EPS estimates and 15.1x 2011 EPS estimates.

Business

United Parcel Service provides transportation, logistics, and financial services. The company operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight.

Delivering packages around the globe is an economically-sensitive business. So, increasing global economic activity is driving the company’s revenue growth.

In addition, UPS has continued to focus on streamlining its costs and reducing its cost structure. That combined with its solid top-line growth is enabling the company to produce significant operating leverage and impressive earnings growth.

First-Quarter Results

On April 15, the company reported first-quarter results. Revenues climbed 7% to $11.7 billion. EPS jumped 37% to $0.71, beating the Zacks Consensus Estimate by 2 cents.

Guidance

UPS expects first-quarter trends to continue through 2010, which means solid revenue growth and additional operating leverage. The company raised its 2010 adjusted EPS guidance to $3.05-$3.30, which represents annual growth of 32%-42%.

Estimates

After UPS reported better-than-expected Q1 results, the Zacks Consensus for 2010 increased 35 cents, or 12.0%, to $3.27, and the Zacks Consensus for 2011 rose 37 cents, or 10.4%, to $3.94. Those estimates have held steady for the last few months.

Read the May 7 commentary on UPS.

Last Week’s Growth and Income Zacks Rank Buys

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Cardinal Health (CAH) is a steady performer in the stable drug distribution business. This Zacks #2 Rank stock has a safe 3% dividend yield, and it trades at a reasonable 15x fiscal year 2010 EPS estimates. click here.

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