2023-08-09 12:17:59 ET
UBS downgraded United Parcel Service ( NYSE: UPS ) to a Neutral rating from Buy due to what the firm sees as an unclear path to margin improvement and the return of diverted domestic package volume.
Analyst Thomas Wadewitz said the greater than expected decline in domestic package volume and added costs from the UPS Teamsters contract create a backdrop of pressure on UPS's domestic package margins through the second quarter of 2024.
"We are lowering our 2023 EPS to reflect the anticipated pressure on 2H23 Domestic margin performance and also weaker volumes. We are also lowering our 2024 EPS which fall from $12.35/share to $10.90. In 2024 we assume a modest rebound in Domestic Package volumes of 3.4% and 100 bp of Domestic margin improvement. We do not view these assumptions as conservative and they depend on UPS realizing solid pricing gains and recapturing diverted volumes from FedEx and other competitors."
UBS raised its target P/E on UPS ( UPS ) to the 10-year average of 17X and applied it to the 2024 EPS estimate to derive a price target of $185.
Separately, Loop Capital downgraded the parcel delivery stock to a Hold rating after also turning cautious on the near-term profitability setup.
Shares of UPS ( UPS ) slipped 0.66% in afternoon action on Wednesday
More on UPS:
- United Parcel Service: Worthy Of A Downgrade After Painful Misses
- UPS earnings highlights
- Growth metrics on UPS
- Valuation metrics on UPS
- Seeking Alpha's Quant Rating for UPS
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UPS catches two more downgrades on concerns over cost pressures