Given its better prospects, we believe that UPS stock (NYSE: UPS) is a better pick than Archer-Daniels-Midland Company stock (NYSE: ADM), a food processing company. Although these companies are from different sectors, we compare them because they have a similar revenue base of about $100 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.
Interestingly, UPS stock has had a Sharpe Ratio of 0.3 since early 2017, lower than 0.4 for ADM and 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Looking at stock returns, both have underperformed the broader markets. While UPS is down 10% this year, ADM has plunged 19%, and the S&P500 index is up 12%. There is more to the comparison, and in the sections below, we discuss why we believe UPS will offer better returns than ADM in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of UPS vs. Archer-Daniels-Midland Company: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. Archer-Daniels-Midland’s Revenue Growth Is Better
- Archer-Daniels-Midland’s 17% average annual revenue growth rate in the last three years is better than 11% for UPS.
- The revenue growth for UPS over the recent years was driven by shelter-in-place restrictions and the spread of the COVID-19 virus, resulting in e-commerce growth.
- However, this trend has cooled off, affecting revenue growth rates and delivery volumes.
- For perspective, UPS saw a 14.5% rise in ground average daily package volume in 2020, but the growth slowed to 1.6% in 2021, and it was down 2.3% in 2022.
- For Archer-Daniels-Midland, strong demand for food and biofuel has driven its top-line growth.
- The global food supply chain disruptions have boosted prices, bolstering the company’s sales growth.
- However, of late, the revenue growth has been adversely impacted due to rising commodity costs. Lower sales prices for soybeans, oils, and biodiesel have weighed on the company’s sales in the first half of 2023.
- Still, if we look at the last twelve months, 5.8% revenue growth for Archer-Daniels-Midland fares better than the -3.9% for UPS.
- Our UPS Revenue Comparison and Archer-Daniels-Midland Company Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, UPS’ revenue is expected to grow faster than Archer-Daniels-Midland’s over the next three years. We expect the sales to grow at a CAGR of 5% for UPS compared to a 2% CAGR for ADM, based on Trefis Machine Learning analysis.
2. UPS Is More Profitable
- UPS’ operating margin has risen from 10.5% in 2019 to 13.0% in 2022, while Archer-Daniels-Midland’s operating margin increased from 3.1% to 5.2% over this period.
- Also, looking at the last twelve-month period, UPS’ operating margin of 12.1% fares better than 4.1% for Archer-Daniels-Midland.
- Rising costs have weighed on Archer-Daniels-Midland’s margins in the recent quarters.
- Our UPS Operating Income Comparison and Archer-Daniels-Midland Operating Income Comparison dashboards have more details.
- Looking at financial risk, UPS fares better with its 15% debt as a percentage of equity lower than 21% for Archer-Daniels-Midland and its 11% cash as a percentage of assets higher than 3% for the latter, implying that UPS has a better debt position and more cash cushion.
3. The Net of It All
- We see that UPS is more profitable and has a better financial position. On the other hand, Archer-Daniels-Midland has seen better revenue growth.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe UPS is the better choice of the two.
- UPS stock is trading at 1.4x revenues vs. the last five-year average of 1.7x. In contrast, ADM stock trades at 0.4x revenues vs. its last five-year average of 0.5x.
- Our UPS Valuation Ratios Comparison and Archer-Daniels-Midland Valuation Ratios Comparison offer more details.
- If we compare the current valuation multiples to the historical averages, both stocks look equally appealing. However, UPS’ superior expected revenue growth in the next three years will likely result in higher returns for UPS than ADM.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 13% for UPS over this period vs. a 1% expected return for ADM, based on Trefis Machine Learning analysis – UPS vs. Archer-Daniels-Midland – which also provides more details on how we arrive at these numbers.
While UPS may outperform ADM in the next three years, it is helpful to see how UPS’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Merit Medical Systems vs. UPS.
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