GO
Loading...

Cramer thrilled UPS slashed forecast?

UPS slashed its earnings forecast a few weeks ago, and Cramer couldn't be happier. Really.

And, no, it's not just because he's a buyer and the revision sent shares lower. Cramer honestly thinks the lowered forecast is quite bullish.

And he says if other investors had sifted through the specifics and noted all the details, they'd feel the same.

"You see the driving reason for why UPS slashed its forecast were far from negative. In fact, they were outright positive. This is why you should never, ever simply trade off the headline earnings numbers. You have to read the full release and then listen to the conference call or you won't understand the reality of the situation," Cramer said.

Tim Boyle | Bloomberg | Getty Images

In the case of UPS, the company cut estimates because it plans to spend more money growing its business. "There's nothing wrong with that in my book," Cramer said.

The inference is that UPS would only be growing the business if they expected more traffic.

"The fact that management felt it was prudent to make these investments to improve customer service and enhance profitability tells me that management is confident in their business. They believe that recent positive trends will be sustainable or they wouldn't be spending this money."

Cramer's conclusion is, of course, speculative. However, he quickly found other commentary that confirmed his expectations.

That is, UPS also said it cut its forecast because the company is expecting higher costs associated with stronger than expected demand. "That's right. United Parcel believes that demand will be stronger than expected, and when a shipping company has to deal with an unanticipated increase in demand, its costs tend to rise," Cramer said.

All told, the slashed forecast is a sign of strength, not weakness.

---------------------------------------------------------------
Read more from Mad Money with Jim Cramer
Why is Street preparing for the worst?
Rapid growth company with strong potential
New IPO shows long-term promise
---------------------------------------------------------------

Even if the catalysts for the recent decline had been bearish, Cramer probably would have said, the dip presents opportunity. "Whenever a well-run, iconic business like United Parcel experiences a hideous selloff, you have to remember that you're dealing with one of the highest quality companies in the world and scale into a position, strategically."

However, when the catalyst for a decline is actually bullish, Cramer doesn't mince words; he simply suggests pulling the trigger. "United Parcel is now selling at less than 17 times next year's earnings estimates, and it sports a solid 2.6 percent dividend yield, I think UPS is darned cheap at these levels. Historically the stock has sold at an average multiple of 22 times earnings. Slap that multiple on next year's numbers and this becomes a $126 stock."



(Click for video of this Mad Money segment)

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Mad Money Moments

Cramer's New Book