UPS Stock Just Got Upgraded. The Bottom Might Be Here. -- Barrons.com

Al Root

An upgrade of United Parcel Service stock came with a trim to the target price. That's unusual but might be a sign that the bottom for the struggling shipper is finally here.

On Tuesday, BMO analyst Fadi Chamoun upgraded UPS stock to Buy from Hold, and lowered his price target to $150 from $155.

It's far more typical to see target prices rise with upgrades. The BMO upgrade reflects how difficult it has been for UPS lately.

Coming into Tuesday trading, shares were down about 18% year to date. Operating-profit margins in 2024 are expected to finish down roughly one percentage point from 2023, and down four percentage points from 2022, as labor costs have risen and U.S. domestic sales have declined.

Chamoun still has his concerns with UPS, mainly about profit-margin improvement, but still believes this is a good entry point: "A combination of cyclical tailwinds; moderating unit cost-inflationary pressures, including positive contribution from cost-reduction programs; and low valuation render the near-term risk/reward favorable."

Wall Street sees some improvement coming. Operating-profit margins are expected to rise about 1 percentage point to almost 11% in 2025 versus 2024, with U.S. domestic sales growing about 4% year over year.

That's a reasonable setup with the stock trading for less than 15 times estimated 2025 earnings per share. The S&P 500 trades for closer to 22 times. UPS stock also has a dividend yield north of 5%.

UPS stock was up 0.8% in early trading Tuesday at $129.55, while the S&P 500 was up 0.1% and the Dow Jones Industrial Average was off 0.1%.

With the upgrade, 53% of analysts covering UPS stock have Buy ratings, according to FactSet. A year ago, about 42% of analysts rated shares at Buy.

The average Buy-rating ratio for a stock in the S&P 500 is about 55%.

The average analyst price target for UPS stock is about $150.

Write to Al Root at allen.root@dowjones.com

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December 10, 2024 11:27 ET (16:27 GMT)

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