BMO Capital Markets analyst Fadi Chamoun upgraded United Parcel Service, Inc. (NYSE: 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 (NASDAQ: FTXR) and iShares Trust iShares U.S. Transportation ETF (NYSE: IYT).
Price Action: UPS shares are up 1.05% at $129.88 at the last check Tuesday.