UPS Near-Term Outlook Is Favorable Despite Margin Concerns, Analyst Upgrades Stock

BMO Capital Markets analyst Fadi Chamoun upgraded United Parcel Service, Inc. UPS to Outperform from Market Perform and reduced the target price to $150 (from $155).

The analyst writes that they still have concerns about the trajectory of UPS’s Domestic operating margins in the medium-to-long term.

Chamoun notes the combination of cyclical tailwinds, moderating unit cost inflation, positive contributions from cost reduction programs, and a low valuation make the near-term risk/reward favorable.

After nearly two years of soft B2B demand, the analyst expects lower interest rates and a recovering industrial economy to drive a return to low single-digit growth in B2B volumes.

Additionally, UPS has implemented more pricing actions on lower-margin B2C customers, particularly in the U.S. Domestic segment, which the analyst notes will improve the volume mix going forward.

Chamoun estimates EPS of $7.49 (vs. $7.52 prior) for 2024 and $8.68 (vs. $8.81 prior) for 2025.

In October, UPS reported consolidated revenue growth of 5.6% year-over-year to $22.2 billion, beating the consensus of $22.14 billion. Adjusted EPS was $1.76, up 12.1% YoY, above the consensus of $1.63.

Investors can gain exposure to the stock via First Trust Nasdaq Transportation ETF FTXR and iShares Trust iShares U.S. Transportation ETF IYT.

Price Action: UPS shares are up 1.05% at $129.88 at the last check Tuesday.

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