UPS shares target cut by Stephens amid challenging market conditions

On Wednesday, Stephens announced a reduction in the price target for UPS (NYSE:UPS) shares to $140 from $168, while maintaining an Equal Weight rating. The firm cited a combination of factors impacting the company's performance and outlook.

UPS's second-quarter results fell short of expectations, primarily due to a persistently challenging mix affecting domestic profitability. This trend is anticipated to extend into the second half of 2024.

Despite the lower-than-expected results, UPS has shown some positive developments. The company has achieved growth in its Domestic Average Daily Volume (ADV), which aligns with forecasts.

However, the new freight contributing to this growth is reportedly of lower margin, and Revenue Per Piece (RPP) is under continued pressure. These factors are expected to remain until the mix stabilizes.

In contrast to domestic challenges, UPS's international operations have maintained strong margins. Additionally, the company is reportedly on track to realize $1 billion in cost savings.

The analyst from Stephens noted that the latter half of the year holds more promise as cost inflation eases and a potentially more standard peak season could provide opportunities for UPS to leverage pricing, including recently increased surcharges.

Nevertheless, the guidance for the second half of the year is weighted towards the latter end, which diminishes the attractiveness of the setup according to the analyst. Visibility on market share retention or growth, coupled with price increases, is necessary to support a more positive outlook. The revised price target of $140 is based on a 16.5 times multiple of the next twelve months' (NTM) earnings per share (EPS).

In other recent news, United Parcel Service (NYSE:UPS) announced a positive shift in its business trajectory with volume growth in the United States for the first time in nine quarters. This was disclosed in the company's second-quarter 2024 earnings.

However, the company's adjusted earnings per share (EPS) of $1.79 and total revenue of $21.818 billion fell short of market expectations. The adjusted operating profit was also lower than expected at $2.064 billion.

Oppenheimer has subsequently reduced its price target for UPS to $140 from $157, yet maintained an Outperform rating. Jefferies also reduced the price target to $145 from $175, but maintained a Buy rating. Both firms made these adjustments following UPS's second-quarter performance and the company's revision of its revenue guidance for 2024 to $93.0 billion.

In addition to these financial updates, UPS has plans to acquire Estafeta, a prominent small package provider in Mexico, and aims to enhance its logistics services for the healthcare sector and small and medium-sized businesses. These are among the recent developments that have been noted for UPS.

InvestingPro Insights

The recent adjustment in UPS's price target by Stephens reflects a cautious stance on the company's short-term outlook. To provide further context, InvestingPro data indicates a mixed financial landscape for UPS. The company's market capitalization stands at $109.24 billion, with a Price to Earnings (P/E) ratio of 21.05, which adjusts to 15.96 when looking at the last twelve months as of Q1 2024. While the revenue has seen a decline of 9.25% over the same period, the dividend yield remains attractive at 5.11%, highlighting UPS's commitment to returning value to shareholders.

Two notable InvestingPro Tips for UPS investors include the company's track record of raising its dividend for 14 consecutive years and maintaining those payments for 26 years, underscoring its financial stability. Additionally, despite recent downward revisions by analysts for the upcoming period, UPS is still predicted to be profitable this year. These insights suggest a potential for resilience in UPS's financial performance, even as it navigates market challenges.

For investors seeking a deeper analysis, InvestingPro offers additional tips and metrics on UPS. By using the promo code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking valuable insights that could inform investment decisions. With 11 more InvestingPro Tips available, including commentary on UPS's industry position and debt levels, there is a wealth of information for those looking to thoroughly understand the company's prospects.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.