UPS Terminates Estafeta Deal: How Should You Approach the Stock Now?

United Parcel Service UPS recently announced that it is withdrawing from the deal to acquire Mexican firm Estafeta. UPS cited the inability to satisfy all closing conditions as the reason for the cancellation. The agreement was initially announced in July 2024 and was aimed at creating trade opportunities for customers in Mexico and beyond.

The deal was inked as a part of UPS’ “Better and Bolder” strategy to become the world's premium international small package and logistics provider. At the time of announcing the deal, UPS management stated that it expected to close by the end of 2024. However, after more than a year, the deal has now been called off, thereby dealing a blow to the company’s efforts to strengthen its presence in Mexico and support the growth of cross-border trade.

In view of the failure of the Estafeta deal to go through, the obvious question that arises is whether investors should buy, sell, or hold UPS stock now. Let's delve deeper to find out how investors should approach the stock in the current scenario.

UPS Suffering From Revenue Weakness

Geopolitical uncertainty and higher inflation continue to hurt consumer sentiment and growth expectations. The weak demand scenario due to the economic slowdown has also led to a decline in the volume of packages shipped at UPS.

Due to the weakness, average daily volumes (consolidated) have been weak. At UPS, average daily volumes on a consolidated basis have declined 3.8% year over year in the first half of 2025.  The tariff-induced uncertainty caused UPS not to give any revenue or operating profit guidance for 2025 while releasing second-quarter 2025 results. In the June quarter, revenues decreased 2.7% year over year.

UPS Looking to Cut Costs to Thwart Revenue Woes

It is no secret that UPS’ bottom line is being hurt by high costs, mainly on the labor front. High labor costs, in addition to softness concerning parcel volumes, are hurting the company’s operations.  

The weak demand scenario is hurting results due to declining volumes. Faced with these headwinds, the company is focusing on cutting costs. As part of this exercise, UPS is offering buyouts to delivery drivers for the first time in its 117-year history. UPS’ full-time drivers are eligible for this offer. Per a Reuters report, the company aims to trim its workforce by 20,000 this year, representing approximately 4% of the global workforce, and shut 73 facilities to streamline operations and lower labor costs.

Apart from the tariff-induced economic uncertainties, UPS’ decision to reduce business with its largest customer, Amazon AMZN, contributed to the decision to trim the workforce. UPS’ management has reached an agreement in principle with Amazon to lower the latter’s volume by more than 50% by June 2026. According to UPS CEO, Amazon was not its most profitable customer.

UPS’ Lackluster Price Performance

Mainly due to the revenue woes, shares of UPS have plunged in excess of 30% year to date compared with the Zacks Transportation—Air Freight and Cargo industry’s 26.1% fall. Rival FedEx's FDX price performance is better than that of UPS.

Earnings Estimates Southbound

The Zacks Consensus Estimate for UPS’ 2025 adjusted earnings is currently pegged at $6.50 per share, indicating a 15.8% year-over-year decline. The consensus mark for 2025 revenues suggests a 3.9% decline from 2024 actuals. The Zacks Consensus Estimate for both 2025 and 2026 earnings has been revised downward over the past 60 days.

UPS’ Valuation: A Saving Grace

UPS is currently considered relatively undervalued, trading at a forward 12-month price to sales (P/S) of 0.81X. This figure is lower than the industry average but a tad higher than that of FedEx. UPS and FedEx currently have a  Value Score of A each. 

UPS's P/S Vs. Industry, & FDX

Not an Opportune Time to Bet on UPS Stock

No doubt that UPS’ valuation is attractive. However, headwinds caused by revenue woes are hard to ignore. Moreover, despite its impressive dividend yield, doubts regarding UPS’ dividend sustainability arise.

UPS’s elevated dividend payout ratio (the percentage of net income paid out as dividends) of 87% highlights the concern associated with its ability to maintain dividend payouts over the long term. Operational strain is reflected in the fact that free cash flow failed to cover the dividend paid in the first half of 2025. The company only generated $742 million in free cash flow in the first half but paid $2.7 billion in dividends.

The failure of the Estafeta deal represents a setback to UPS’ expansion efforts. UPS currently carries a Zacks Rank #4 (Sell) and looks like a stock to avoid rather than chase.

 You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.   

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This article originally published on Zacks Investment Research (zacks.com).

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