Shares of UPS (UPS) have climbed more than 4% Tuesday after UBS upgraded the stock to Buy from Neutral, raising the price target to $175 from $160 per share.
Analysts at UBS told investors that UPS is a "cost narrative" and expectations for the company are currently low.
"We expect management to deliver a strong cost reduction program to support margin expansion and attractive EPS growth despite facing a backdrop of muted revenue growth," said analysts at UBS.
"We expect UPS's March 26 analyst meeting to provide greater visibility to cost savings and act as a catalyst for stronger valuation," they added.
The significant move down in UPS shares is in response to their 4Q report and EPS guidance, which suggests that investor expectations reflect a low bar," according to UBS.
"We also believe investors may be skeptical about UPS's ability to deliver stronger 2H24 performance and achieve 10%+ margin performance in 4Q24," commented analysts at UBS. "In contrast, we expect UPS to deliver strong cost takeout, which would provide support for a ramp in Domestic Package margin in 2H24 and 10%+ margin performance in 2025E.
UBS forecasts a 10.4% domestic margin in 2025 for UPS, which is a key factor supporting the bank's $10.30 per share forecast.