Shares of UPS were under pressure on Wednesday following the company's investor day
UPS held its highly anticipated analyst day on Wednesday. At the event the company said pricing could stay stronger for longer because shipping capacity will be slow to recover from the COVID-19 pandemic. UPS also noted that 2023 operating earnings projections were 5% higher that forecasts. While JPMorgan analyst Brian Ossenbeck upgraded the stock to Overweight on "incremental positives" provided by the company's event, his peer at Stephens said the event "failed to live up to raised investor expectations." Morgan Stanley analyst Ravi Shanker shared the latter's opinion, telling investors that the analyst day was "not quite the event promised."
INCREMENTAL POSITIVES: JPMorgan analyst Brian Ossenbeck upgraded UPS to Overweight from Neutral with a price target of $243, up from $224. The analyst believes the company's investor day provided "incremental positives" around pricing power, capacity discipline and the dividend yield. Further, Ossenbeck sees an attractive entry point following the stock's underperformance. The majority of investors were confused and frustrated by messaging at the event, which likely lingers for some time, but UPS "left multiple areas of potential upside" versus its 2023 guidance if execution continues improving and industry fundamentals remain supportive, the analyst contended.
Meanwhile, Oppenheimer analyst Scott Schneeberger raised the firm's price target on UPS to $222 from $210, keeping an Outperform rating on the shares. The analyst noted that at its investor day, UPS highlighted targeted areas of growth, including small-to-medium sized businesses, healthcare and international, provided 2023 financial targets, and established new ESG targets. Further, 2023 financial targets of total revenue of $98-$102B, total adjusted operating margin of 12.7%-13.7%, cumulative 2021-2023 capex of $13.5B-$14.5B, and adjusted ROIC 26%-29% were "solid," albeit seemingly not sufficiently ambitious per market expectations. This was particularly true for margins, given strong momentum built since the onset of the pandemic, Schneeberger added. The analyst perceives the guidance as appropriately conservative and "appearing achievable with upside potential."
Keeping a Market Perform rating on the stock, BMO Capital analyst Fadi Chamoun raised his price target on UPS to $200 from $195. The company's 2023 financial targets imply above-consensus high $12 earnings per share and EBIT of $12.4B-$14B, but also suggest a more moderate rate of growth, the analyst noted. While growth in volumes will "naturally moderate" given tougher comps post-pandemic, Chamoun welcomes UPS management's continued emphasis on improving the balance sheet.
'NOT QUITE THE EVENT PROMISED': While Morgan Stanley analyst Ravi Shanker raised the firm's price target on UPS to $130 from $120, he kept an Underweight rating on the shares following an analyst day that he calls "light on the details" around guidance, cost savings, pricing strategy and competition that he "and the market were looking for." At a high level, the tone of the event was very positive and the content and message did not deviate much from past UPS analyst days under an almost all-new management team, Shanker acknowledged. However, the analyst pointed out that this may be "somewhat of a disappointment" as management had indicated that "everything was on the table" and that "no stone would be left unturned." He further argued that "the biggest drivers of UPS' ability to hit its guide appear to be outside its control" as achieving its targets will require no pandemic unwind, no competitive loss and big small-to-midsize business gains in his view.
UPS Stephens analyst Jack Atkins also raised the firm's price target on UPS to $215 from $207, while maintaining an Equal Weight rating on the shares after the company issued "its long awaited and much anticipated" long-term financial targets through 2023 at its analyst day. While UPS noted that its long-term targets were biased to the upside, the event "failed to live up to raised investor expectations," which is "much like other UPS analyst days over the past decade," Atkins argued. A key focus was U.S. Domestic package margins and the company's 10.5%-12% target by 2023 "was simply not enough" given the stock was up 25% year-to-date, he added.
PRICE ACTION: In Thursday afternoon trading, shares of UPS have gained over 1% to $203.62.
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