KeyBanc: UPS Set To Deliver With Investment Benefits, International Growth Potential

United Parcel Service, Inc. UPS is poised to benefit in the near-term from ongoing network investments as well as growth in international markets, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Todd Fowler maintains a Sector Weight rating on United Parcel Service.

The Thesis

The package delivery and supply chain management multinational is expected to generate robust operating income growth in 2019, Fowler said in a Tuesday note. 

The company continues to invest in network and cost efficiency initiatives and is expected to increase capacity by around 5 million square feet in 2019, following a similar addition to capacity in 2018, the analyst said. The addition will support e-commerce growth as well as automation and digitization associated with the Smart Global Logistics Network, he said. 

Despite continued investments, United Parcel Service’s domestic EBIT is expected to grow 10-13 percent in 2019, backed by mid-single-digit revenue growth, Fowler said.

UPS is focusing on international markets and has made investments to reduce transit times in Europe and increase revenue growth in emerging markets like India, Africa and the Middle East, according to KeyBanc. 

The company's guidance reflects EBIT growth of 10-12 percent in international markets on mid-single-digit revenue growth, Fowler said. 

This is being driven both by increased traction and network flexibility that the company has achieved by using independent contracts to manage fluctuations in volume and mix, the analyst said. 

Price Action

United Parcel Service shares were up 0.39 percent at $108.83 at the time of publication Wednesday. 

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