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Investing.com -- UBS Global Research downgraded DHL Group (ETR:DHLn) to "sell" from "neutral" in a note dated Tuesday, lowering the price target to €36 from €37.50.
The downgrade reflects concerns about underappreciated tariff headwinds and overly optimistic mid-term growth expectations.
UBS analysts flagged that US import tariffs have risen from 3% to 17%, increasing landed costs and potentially reducing demand.
The abolition of the de minimis rule for China imports compounds these pressures. UBS Evidence Lab transponder data indicates a 25% year-over-year decline in DHL’s dedicated freighter capacity on the Transpacific route following the May 14 China-US trade deal, signaling weakening demand. UBS expects these headwinds to intensify in the second half of 2025.
The Express division’s growth outlook was also revised downward. While DHL projects 4%-5% annual volume growth through 2030, UBS forecasts approximately 3% growth, citing increased customer down-trading to lower-cost services due to higher tariffs.
Near-shoring trends in sectors like semiconductors, pharmaceuticals, and automotive production are also expected to limit demand for long-haul air cargo.
UBS HOLT analysis found DHL’s economic returns lag peers. DHL’s CFROI stands at 6.6%, compared to 8.3% for European industrial companies and 15%-19% for asset-light freight forwarders DSV and Kuehne + Nagel.
Although DHL trades at around 13 times forward earnings, UBS argues that adjusting for replacement costs raises the effective P/E ratio to 17.4, aligning with European capital goods averages.
UBS reduced its EBIT estimates for 2026 and 2027 by around 3% due to lower Express volumes and margins.
Forecasted diluted EPS are €2.78 for 2025, €3.14 for 2026, and €3.42 for 2027, all below consensus expectations.
The brokerage also noted that DHL’s free cash flow yield is 5.7%-6.4%, broadly in line with peers, though current capex levels are 1% below the 2018-2023 average, impacting cash flow generation.
The report acknowledged potential upside from stronger economic growth or tariff reductions but maintained a cautious stance in the absence of such developments.
“We believe the market underappreciates the headwinds to profitability from the implementation of US tariffs,” UBS said.