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Investing.com -- Citi Research has upgraded DHL Group (ETR:DHLn) to a "buy" rating from "neutral," citing the underutilization of its Express network as a key driver for potential margin upside and raised the stock’s target price from €40 to €48.
The Express division, which accounted for 46% of DHL’s EBIT in 2024, has seen a decline in Total (EPA:TTEF) Daily International volumes since 2021.
Citi analysts believe the market has underestimated the potential for EBIT margin expansion as volumes recover.
The brokerage’s models predict a 2026E Express EBIT margin of 13.4%, surpassing the company’s consensus estimate of 12.7%.
This projection contributes to Citi’s 2026E adjusted earnings per share estimate of €3.61, which is about 5% above consensus.
Citi’s analysis highlights that DHL’s Express network is currently underutilized, with daily volume per full-time equivalent at 14.3 in 2024, down from 15.9 in 2019.
Despite comparable volumes to 2019, proprietary flight data suggests that DHL’s Express network is now larger than it was in 2019.
As volumes recover, this expanded network can accommodate increased demand without significant additional costs, boosting operational leverage and margin expansion.
Citi expects the Express EBIT margin to rise to 13.4% in 2026E and 13.7% in 2027E, compared to consensus figures of 12.7% and 13%, respectively.
Early signs of a volume recovery are emerging, according to Citi Research. A strong correlation of 0.91 was observed between TDI daily volumes and key economic indicators such as the Eurozone Purchasing Managers’ Index, GDP, consumer sentiment, and IFO business climate data.
Many of these indicators have risen from recent lows, suggesting that TDI volume could grow at a moderate rate of 3% annually from 2026E to 2028E, following four years of decline.