2023-07-31 09:08:51 ET
United Parcel Service ( NYSE: UPS ) dipped in early trading on Monday after Credit Suisse downgraded the parcel delivery stock to a Neutral rating from Outperform.
Analyst Ariel Rosa and team were relieved to see UPS reach an agreement with its union this week to avert a painful strike, but warned that the Teamsters appear to have secured rather large wage increases. Looking ahead, the wage hikes will be a drag on UPS earnings in the year ahead.
"Our back of the envelope math based on an immediate increase in wages of $2.75 per hour for both full-time and part-time workers suggests an incremental headwind of between $1.5-$2.0 billion (across 340,000 union employees), which could equate to roughly a $1.50-$1.75 annualized drag on EPS."
UPS ( UPS ) is expected to be able to offset some of the pressure with price increases and efficiency initiatives, although the terms of the contract appear to allow for larger wage increases than are seen being priced into the stock.
Credit Suisse lifted its price target on UPS ( UPS ) to $204.
Shares of UPS ( UPS ) were down 0.85% in premarket trading to $187.89.
More on UPS:
- UPS signs tentative five-year deal with Teamsters to avoid a costly strike
- UPS: Sagging Volumes Baked In, Shares Are Buy Amid Trough Earnings
- Growth metrics on UPS
- Recent options trades on UPS
- Seeking Alpha's Quant Rating for UPS
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UPS dips after Credit Suisse puts a number to new labor contract headwind