Wolfe Research analysts upgraded shares of United Parcel Service Inc (NYSE:UPS) to Peer Perform from Underperform, removing the firm's price target on the stock in a note Tuesday evening.
The analysts told investors in a note that they are upgrading the stock following its earnings and stock reset after UPS shares fell 10% following the results.
"This morning, UPS reported 1Q EPS of $2.20, in line with consensus and slightly above our estimate of $2.18. Total revenue declined 6.0% y/y, 80bp light of our model, while consolidated margins of 11.1% declined 240bp y/y. U.S. and SCS both missed our expectations modestly, but Int'l slightly beat our model," said the analysts.
Looking ahead, UPS expects 2Q profit to fall around 19% YoY, 8% below our prior expectations. The analysts said the firm believes this, in part, reflects share losses ahead of its July 31 Teamster contract expiration. They also noted that UPS expects a recovery in the back half, "with 2H representing 56% of total operating profit, above its historical average of 52%. Thus, guidance still feels at risk to us."
Wolfe Research lowered its 2Q EPS estimate by 8% to $2.56, and it is now 9% below the prior consensus. It also lowered its full-year C23 EPS by 4% to $10.60.
"UPS is facing a bad combination right now of a weak macro, share losses ahead of the Teamsters contract, and the normalization of SCS and Int'l earnings," explained the analysts. "That said, domestic parcel pricing is holding up well, and we think buybacks can re-accelerate after a Teamsters deal.
"The upcoming consolidation of FDX Ground and Express should also be positive for UPS over time. We think the stock could be volatile in the near term around Teamsters' news flow, but with UPS at 16.6x our reduced C23 EPS estimate and below our prior target price, we're moving to the sidelines and raising our rating to Peer Perform."