Al Root
A freight recession hit shares of United Parcel Service and FedEx in 2024. Things should improve in 2025 and UPS stock looks like the better bet -- for one analyst.
Wednesday, Bernstein analyst David Vernon bumped up his target for UPS stock to $179 from $172, and maintained his Buy rating. He rates FedEx stock at Hold.
Parcel shippers had a tough 2024, struggling through a "freight recession" -- falling demand -- and the negative impact of delayed Federal Reserve rate cuts, wrote Vernon. "As we head into the new year, we remain optimistic that the industry setup is more favorable than it was in 2024."
The U.S. economy remains healthy, interest rates should come down, and business-to-business volumes should improve, helping end the so-called freight recession, he says.
Vernon prefers UPS stock to FedEx shares. UPS has better visibility into cost inflation" and Veron sees profit margins improving.
Operating profit margins for the company likely finished 2024 below 10%, down from a recent peak of almost 14% in 2022. Wall Street expects margins to improve to about 11% by 2026. UPS is targeting closer to about 12%.
UPS stock was up 1.2% at $126.47 in premarket trading, while S&P 500 and Dow Jones Industrial Average futures were both down about 0.1%. FedEx shares were up 0.4% at $276.02 apiece.
Also helping UPS stock was an upgrade to Buy from Hold from Wolfe Research analyst Scott Group. His price target is $147. He expects profit margins to improve which "historically leads to much better performance for the stock," wrote Group.
He rates FedEx stock Buy as well, with a $339 price target.
Overall, about 56% of analysts covering UPS stock have Buy ratings, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for UPS shares is about $149, implying about 20% upside.
About 58% of analysts covering FedEx stock have Buy ratings. The average price target is about $327, implying about 19% upside.
UPS stock has had a tougher go than FedEx lately. Coming into Wednesday trading, shares were down about 22% over the past 12 months, FedEx stock was up about 11%, and the S&P 500 was up about 24%.
UPS stock trades for about 14.3 times estimated 2025 earnings, down from 16.6 times a year ago. FedEx shares trade for about 12.9 times and the S&P 500 trades for about 21.9 times.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 08, 2025 08:51 ET (13:51 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
