Why Did Bill Gates Buy UPS Stock?

Bill Gates is a business and technology icon. As co-founder of Microsoft, he played a pivotal role in the meteoric rise of computing technology that kicked off in the 1970s. For the past decade, however, the highly influential businessman has stepped away from the helm of Microsoft and focused more on the Bill and Melinda Gates Foundation Trust.

The charitable organization has a stock portfolio estimated at $42 billion, and it’s no surprise that Microsoft stock is its top holding. The other 24 stocks in the trust include familiar names like Walmart, Berkshire Hathaway, and Deere. It also includes a substantial holding of UPS (NYSE: UPS) stock.

The Gates Foundation Trust currently owns 755,089 shares of UPS, valued at around $118.7 million. While UPS stock only accounts for 0.28% of the trust’s portfolio, Bill Gates has held the stock since 2014.

That’s a powerful vote of confidence from one of the world’s foremost investors. But UPS shares haven’t performed well lately, down 16.5% over the past year. The stock pushed above $220 in early 2022, but it’s fallen 31.7% from that peak. One of the main concerns for investors is that revenue and earnings took a significant step back in 2023.

So why did the billionaire jump on board UPS stock?

Why Did UPS Stock Drop?

UPS lagged behind revenue estimates in all four quarters of 2023. Fourth quarter revenue of $24.9 billion was 7.8% lower than the same quarter of 2022. Analysts had expected $25.4 billion in revenue, a 1.97% difference.

Net income took an even more substantial year-over-year tumble, down 54% from $3.5 billion to $1.61 billion. Even still, diluted earnings per share (EPS) equated to $2.47, which slightly beat EPS estimates of $2.46.

The company was hit with fees and charges that totaled up to $512 million in the 4th quarter, and it dragged down diluted EPS by $0.60. The decline in revenue, on the other hand, was mainly blamed on lower shipping volumes. US shipments were down 7.4% in 2023, and they were off the mark by 8.3% worldwide.

Competitor FedEx has seen a volume drop as well, and both major shipping companies have ceded ground to Amazon. After passing FedEx in 2020, Amazon finally overtook UPS in 2023 to become the world’s largest delivery company.

Will UPS Stock Bounce Back?

Lower volumes, shrinking market share, and declining revenue can certainly cause investors to shy away. In fact, UPS shares dropped by over 8% after the 4th quarter earnings release in January. But Bill Gates is still holding, and there are reasons to believe that UPS can turn it around.

It may not be immediate, however, as the company recently gave guidance that it expects between $92 billion and $94.5 billion in revenue for 2024. That would be a 1.1% to 3.85% increase from revenue of $91 billion in 2023.

Net income might continue to take a hit though. The company expects its operating margin to drop from 10.9% in 2023 to between 10% and 10.6% in 2024. The 2024 guidance won’t be enough to get many investors back on board, and there doesn’t appear to be another catalyst on the horizon.

The main reason to believe that UPS can turn it around is that many of its issues have been tied to high inflation. Businesses and consumers alike have been cutting costs any way they can, and that certainly has impacted UPS’s bottom line.

The company hopes those effects will be short-lived, but it’s taking action now to streamline its operations. UPS announced it will lay off 12,000 of its workers in an effort to optimize operations. That reduction is expected to save the company $1 billion in costs.

What Do Analysts Say About UPS Stock?

Wall Street analysts aren’t quite as enthusiastic about UPS as Bill Gates is. Out of 30 analysts who have rated the stock, the consensus is to hold.

17 analysts call it a hold, and the average price target is $160.43, a 4.7% improvement over where the stock currently trades.

There are 11 Buy ratings on UPS, with 2 of those analysts predicting the stock will outperform the market. The highest forecast sees UPS hitting $210 per share over the next year, a 37% increase.

There are two Sell ratings on the stock, and the most bearish analyst forecasts that UPS shares will drop to $95 per share over the next 12 months, a 38% fall from its current price point.

Notably, the stock has a price-to-earnings (P/E) value of 19.64, which doesn’t exactly make it appear undervalued. FedEx has a P/E of 15.18 by comparison.

Why Did Bill Gates Buy UPS Stock?

Bill Gates likely bought UPS stock for its attractive 4.26% dividend yield, wide moat, and stable prospects.

UPS’s dividend alone might be enough to entice Bill Gates to buy in. In addition, UPS is also a solid company with an established and recognizable brand. Certainly, it has struggled to drive sales in a tough economic climate, and it has also seen its market share diminish as Amazon has gained traction in its delivery business.

Bill Gates may be one of the key business figures in American history, but his investing moves have been scrutinized as much as his business decisions. His decade-long position in UPS should be enough to get investors’ attention.

Gates and his Foundation may be more patient than some investors are, however, because it will take time for UPS to turn it around. But if inflation eases and customers start shipping again, that time could be sooner rather than later.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.