The short answer to the question in the headline is that United Parcel Service (UPS -3. 11%) is ly to be in a better place in a few years.
Still, the extent of the imvement is debatable, and the result will significantly affect the kind of return investors can expect from the stock. Here's what you need to know in UPS.
The key to the UPS investment case The central argument here is that the underlying imvements in the, and those that will drive its earnings growth over the long term, are being obscured by a combination of near-term headwinds in its end, strategic operational decisions (notably the conscious decision to reduce Amazon deries), and the need to keep paying out $5.
5 billion in dividends. There's little UPS can do the first issue, its end.
The second issue -- Amazon volume reduction -- is sensible, because it aligns with management's strategy of shifting to higher-margin deries to optimize its network.
The third issue -- paying its sizable dividend -- is the challenge here and makes a dividend cut possible.
Considering the curent financial position, cutting the dividend is what management should be doing now.
I don't want to belabor the point cutting the dividend here, but rather to emphasize the imvements in the, which will make it a more attractive company in a few years.
Four ways UPS can imve its There are four things to focus on, and they are all fundamental to management's goal of optimizing the fitability of its network: Expanding higher-margin healthcare-related deries.
Growing its higher-margin deries for small and medium-sized es (SMBs) and capturing more market in the U. The aforementioned reduction in low- or negative-margin deries for Amazon.
Investments in nology to build out its so-called Network of the Future. Growing healthcare revenue Management views expanding higher-margin healthcare deries as a key opportunity.
In its Investor Day presentation, it outlined plans to double its healthcare revenue from $10 billion in 2023 to $20 billion by 2026.
Putting those figures into context, UPS revenue was $91 billion in 2023 (making healthcare 11% of revenue), and Wall Street expects its sales to be $87. 8 billion in 2026.
As such, healthcare revenue could grow to 22. 7% of revenue in 2026 -- a significant shift. To that end, UPS has acquired healthcare es since its Investor Day to achieve its objectives.
It bought Frigo-Trans and Bio & Pharma Logistics (specialists in temperature-sensitive healthcare logistics) in January 2025, and the company agreed to buy Andlauer Healthcare Group for $1.
6 billion in April 2025. Image source: Getty Images.
The opportunity in small and medium-sized es, and Amazon deries Management's plans for SMBs are equally ambitious, with the long-term goal of growing it to 40% of its total package volume in the U.
The penetration rate increased from 27% in 2021 to 29% in 2023 and stood at 31. 2% as of the first quarter of 2025.
The key to its aims here is its Digital Access gram (DAP), which gives SMBs access to enterprise-level shipping rates and services via UPS' partnership with e-commerce platforms used by SMBs.
At the same time, UPS is aiming to reduce Amazon deries by 50% from the start of 2025 to June 2026. Management said that the e-commerce leader was responsible for 11.
8% of revenue in 2024, implying a figure of apximately $10. Reducing Amazon volume by 50%, all things being equal, could result in $5. 4 billion in run-rate revenue from Amazon in 2026.
Underpinning these dramatic shifts in deries, the company will continue to invest in automation, robots, and smart facilities (its Network of the Future).
The ductivity imvements are expected to enable it to close 200 facilities by the end of 2028, resulting in $3 billion in annual cost savings. Image source: Getty Images.
UPS in three years All told, UPS is going to be a significantly different company in a few years, with more healthcare and SMB revenue, and far fewer costly deries going to hard-to-find residential addresses, which are often associated with Amazon.
The shift implies margin expansion (although the reduction in Amazon volume will reduce revenue), as does the investment in its network.
Management could accelerate this cess by reducing its dividend, since it still faces an uncertain economy in 2025, as well as the complex task of fine-tuning the reduction in Amazon volumes.
Still, either way, UPS is ly to be a stronger company in a few years. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and United Parcel Service. The Motley Fool has a disclosure policy.