The best stock of COVID vaccines that no one is talking about
United parcel service (NYSE: UPS) just had its best year. The company was one of the few industrial stocks to post record revenues and adjusted operating income during a period of slower economic growth.
UPS has benefited from an increase in parcel delivery volumes as the pandemic has closed physical stores, causing online shopping and sales to increase. But increasing income is just the headline. Behind the scenes, the company’s investments in healthcare and e-commerce have paid off in 2020 and are expected to play a leading role in its growth for years to come.
Here’s how UPS was able to capitalize on trends from the past year and why it’s the best stock of COVID-19 vaccines that no one is talking about.
Speed up vaccine deliveries
UPS has been in the healthcare logistics industry for over 15 years, making it the ideal transport company to ship millions of doses of COVID-19 vaccine. During her fourth quarter conference call, CEO Carol Tome noted that UPS has delivered an astounding 36.5 million vaccines from manufacturers to assay sites at 99.99% service levels. Along with autos, its healthcare business saw single-digit business-to-business (B2B) growth in an otherwise difficult year for B2B sales. Healthcare contributed to a 26% year-over-year increase in supply chain and freight operating profit in the fourth quarter.
The company’s involvement in the distribution of vaccines is no accident. In fact, UPS anticipated its key role as a major distributor from the second quarter. In the third quarter, Tome said the following about UPS Healthcare and the pandemic:
[The] The healthcare team is supporting clinical trials at all stages for COVID-19 vaccines. Early involvement provides us with valuable data and information to design business distribution plans and manage the logistics of these complex products. We have a great opportunity and, frankly, a great responsibility to serve the world when a COVID-19 vaccine becomes available. When that moment comes, our global network, cold chain solutions and people will be ready.
Tome was right: UPS was ready. On December 12, the company announced that it was distributing the Pfizer/BioNTech vaccine according to plans received by Operation Warp Speed and officials from the Centers for Disease Control and Prevention. (Founded on May 15, 2020, Operation Warp Speed is a partnership between the U.S. government and the private sector to accelerate vaccine development and distribution.) On December 18, UPS partnered with McKesson, a distributor of medical supplies, to deliver Modernathe vaccine of. With vaccine distribution only in its infancy, investors should pay attention to UPS’s involvement in the coming months to see how this translates into its bottom line in terms of revenue and bottom line. .
Vaccine growth trajectory
One of the best ways to gauge the effectiveness of UPS vaccine delivery is to look at its logistics numbers. UPS does not report its health results individually. Instead, these results are fed into the logistics under the supply chain and freight. However, in the fourth quarter, the company reported that healthcare had the best growth in both revenue and results in company history. And UPS attributed large spikes in income and logistics spending to healthcare.
It is also worth tracking UPS deliveries against its transportation competitor, FedEx (NYSE: FDX) to determine if UPS is better positioned to manage vaccine deployment. Like UPS, FedEx has obtained regulatory approval to supply both the Pfizer / BioNTech vaccine and the Moderna vaccine. Both companies have expanded their offering of healthcare services and logistics over the past year. Ultimately, both shippers should benefit from the deployment, but UPS has some advantages over FedEx.
In late November, UPS boosted its dry ice production capacity and announced a partnership with Stirling Ultracold to manufacture ultra-low temperature portable freezers. The ramp-up adds to the global network of UPS defrost stations. FedEx transports about half a million shipments of dry ice each month, but UPS expects a shortage of dry ice as pharmaceutical companies buy dry ice to complete their vaccine deployments.
In addition to manufacturing its own dry ice, UPS has one of the most sophisticated international biopharmaceutical networks in the world. It can ship small to large freight shipments in cold to cryogenic temperatures around the world. UPS offers temperature monitoring that helps keep products within a safe temperature range. UPS sensors are able to record logistics and determine when healthcare shipments will arrive.
In addition to having a larger network, UPS’s biggest advantage in vaccine deployment is UPS Premier. Launched in May 2020, the precision logistics program is tailor-made for vaccine deployment. According to a UPS statement:
This new technology-based paid service is what we call a priority lane within the integrated UPS parcel network. We will be able to categorize and identify critical healthcare shipments before they leave our customers’ hands and provide increased visibility and control along their journey with the technology. This is a major advance in the management of sensitive shipments which require an additional level of control.
Simply put, UPS is incredibly well positioned to take advantage of the COVID-19 vaccine rollout. Investors should monitor logistics revenues, expenses and operating income to track the impact of vaccine distribution on the overall performance of UPS.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.