UPS's Strategic Investment Plan Promises Growth, But This Analyst Questions Market Performance Amid Demand Slowdown

BMO Capital Markets analyst Fadi Chamoun reiterated a Market Perform rating on the shares of United Parcel Service Inc UPS and raised the price target from $160 to $165.

UPS put forth its three-year financial targets, with FY26 consolidated revenue outlook of $108 billion – $114 billion.

According to the analyst, the company’s plan places greater emphasis on leveraging the company’s best-in-class global integrated network to grow in premium segments, including healthcare logistics and SMBs.

Though the analyst considers UPS to be well positioned for success on this front, the analyst notes the revenue targets may prove ambitious if macro conditions don’t meaningfully improve. 

The company’s plan to optimize/automate operations includes $9 billion in investments over the next five years, which is expected to drive $3 billion in cost savings, with about 50% to be realized by 2026, said the analyst.

While financial targets, including EBIT of $14.3 billion by 2026, ahead of consensus, the analyst sees that investors’ expectations were set around a larger contribution from cost savings versus the company’s 2024-2026 forecast, which has greater dependency on revenues.

UPS reaffirmed 2024 guidance but suggested Q1/24 profitability could be 40% lower y/y, implying a weaker start to the year versus expectations.

Though execution has improved under new leadership over the past three years, the analyst has doubts about share price outperformance going forward given fading pandemic tailwinds, slowing demand, and structurally lower density in B2C.

Price Action: UPS shares are trading higher by 1.67% at $146.19 on the last check Wednesday.

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