© Reuters. UPS upgraded at Deutsche Bank as risks are now ‘fully reflected’ in shares
By Senad Karaahmetovic
Deutsche Bank upgraded shares of United Parcel Service (NYSE:) to Buy from Hold with a price target of $220 per share (up from $197). As a result, UPS shares trade nearly 2% higher in pre-open Tuesday.
The upgrade call comes just a couple of months after the analysts moved to the sidelines on UPS stock, citing changing macro conditions. These concerns are “now fully reflected in shares and widely held by market participants,” hence paving the way for a return to Buy rating.
“It’s easy to be neutral or negative on UPS in the current environment, but in our experience that’s exactly the time to get more positive, especially under the stewardship of the current management team,” analysts said in a note.
Instead of being focused on volume growth, the analyst urged investors to focus on UPS’ mix and productivity initiatives, which can “drive positive revenue growth and solid contribution margins despite modestly lower domestic volumes.”
The analysts see great potential for UPS to improve its operating performance and potential for further productivity. The company’s management team recently said that just a 10-minute improvement within its integrated network is worth $257 million to the bottom line.
“We are also intrigued by the company’s comments around attacking density challenges… which focus on temporarily holding orders at the first mile until better density can be achieved on the last mile (while still meeting customer service commitments). This can drive a 90% reduction in last mile unit costs (from $5.50 per package to 60c),” they concluded.
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