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Motley Fool Issues Rare “All In” Buy Alert
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Shares of United Parcel Service (UPS 0.28%) were climbing today after the transportation and logistics powerhouse got an upgrade from Deutsche Bank.
As of 10:50 a.m., the stock was up 2.6%.
Last night, Deutsche Bank analyst Amit Mehrotra raised his rating on UPS from hold to buy and lifted his price target from $197 to $220.
Mehrotra acknowledged the near-term headwinds facing UPS and its peers, stating it’s “easy to be neutral or negative on UPS in the current environment,” but said past experience had shown that this is precisely the time to get bullish on the stock.
While volume growth may be sluggish, he thinks that productivity initiatives will improve margins and help the company gain market share even in a downturn.
Though a number of UPS’ peers, including FedEx, have reported disappointing results due to strengthening macro headwinds, UPS continues to successfully navigate the challenging economic environment.
In its third-quarter earnings report, which came out at the end of October, the company beat earnings estimates and posted record operating margin even as it noted softening demand, especially in international markets.
UPS reaffirmed its guidance for the year, calling for $102 billion in revenue with a 13.7% adjusted operating margin. By contrast, FedEx pulled its guidance in its most recent earnings report.
Additionally, UPS ramped up hiring heading into the holiday season, with plans to add more than 100,000 seasonal workers, showing some optimism even as retailers have offered weak holiday forecasts.
UPS stock currently trades at a price-to-earnings ratio of just 14 and offers a dividend yield of 3.4%. If the company can execute as Mehrotra expects and pick up market share during the downturn, the transportation stock looks like a good bet to deliver solid returns over the coming years.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
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