In addition to bringing packages to customers' front doors this week, United Parcel Service(NYSE: UPS) delivered a business update to the market, including financial targets for the next three years. Investors, however, didn't take kindly to the news. Shares of UPS fell more than 8% on the day of the update from where they closed the day before. Wall Street is also unimpressed. Three analysts, in fact, slashed their price targets on UPS stock on Thursday.
But just because analysts have taken a bearish stance on the stock doesn't mean that forward-looking investors should do the same. In fact, now's a great time for patient investors to pick up shares of the logistics leader.
The basis for the bearish stance on Big Brown
Of the three analysts who reduced their price targets, Helane Becker is the most skeptical. Becker, an analyst at TD Cowen, dropped her price target to $140 from $147. From UPS stock's closing price of $147.30, Becker's price target implies downside of about 5%. According to Thefly.com, Becker predicates her price target on the 2026 free cash flow that the company thinks it will generate -- $17 billion to $18 billion -- despite projecting revenue of $108 billion to $114 billion.
Assuming a less bleak view, analysts at HSBC and Stifel see upside to UPS stock, although they also dropped their price targets. HSBC analyst Parash Jain, for example, pared his price target to $150 from $155 on the belief that UPS will have to turn to acquisitions to help achieve its revenue forecast -- a move that will affect the company's dividend. J. Bruce Chan, on the other hand, still believes that UPS stock has room to run. Dropping his price target to $170 from $178, Chan sees upside of approximately 15% from Wednesday's closing price. In response to the 2026 financial targets that UPS shared, Chan informed investors that the company's outlook "may be optimistic, especially after 2023's weak demand and labor challenges," according to Thefly.com.
Despite the dour views, UPS is a great dividend stock
While it may be disconcerting to see three analysts drop their price targets on UPS stock, it's important for investors to remember that analysts often have short investing horizons. With this in mind, investors can take the analysts' price targets with some grains of salt. Instead, it'd be better to focus on the merits of UPS stock as a dividend play. Should the company return $6.52 per share to investors in the form of dividends in 2024 as it plans, it will mean that UPS will have increased its dividend at a compound annual growth rate of 9.3% from 2010 to 2024. And it's not as if the company has sacrificed its financial well-being to placate shareholders. Over the past 10 years, UPS has averaged an 84% payout ratio.
With management's steadfast dedication to increasing the dividend over the past 14 years, UPS -- and its forward-yielding dividend of 4.4% -- is a worthy consideration right now for investors willing to swim against the current tide of market pessimism. The company is a clear market leader, and its robust 2026 free cash flow target of about $17.5 billion bodes well for its ability to continue raising its dividend for the foreseeable future.
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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends HSBC Holdings and United Parcel Service. The Motley Fool has a disclosure policy.
