On Tuesday, CFRA adjusted its outlook on shares of UPS (NYSE:UPS), lowering the price target to $140 from the previous $149 while maintaining a Hold rating on the stock. The revision follows UPS's announcement of reduced sales guidance for 2024 and a second-quarter earnings shortfall.
The global logistics company reported a 30% year-over-year decrease in operating earnings per share (EPS) to $1.79, which did not meet the $1.99 market consensus. This disappointing performance was attributed to a 1% drop in sales from the previous year, driven by declining international shipments and an unfavorable mix of products within the U.S. Domestic segment.
Despite a resurgence in volume due to e-commerce, UPS's revenue in the U.S. diminished, revealing ongoing pricing challenges that are impacting the company's revenue growth. Additionally, union wage rates have increased by 12% compared to last year, contributing to a significant 390 basis point decline in adjusted operating margins, now at 9.5%.
The CFRA analyst has adjusted the 12-month target price to reflect a 14.2 times multiple on the anticipated 2025 operating EPS of $9.85, which has been slightly reduced by $0.11. The firm has also revised its 2024 EPS estimate downwards by $0.25 to $7.97. The lower target price takes into account the margin pressures facing UPS, which has led to the stock's valuation being set at a discount relative to its long-term average.
Despite the current challenges, CFRA anticipates that UPS will experience a return to year-over-year EPS and revenue growth in the second half of 2024. This outlook is based on more favorable comparisons and potential interest rate reductions.
Still, the firm also notes that there is significant execution risk associated with managing costs, which remains a key concern for UPS going forward. UPS has adjusted its 2024 sales forecast to approximately $93 billion, a decrease from the previously estimated range of $92 billion to $94.5 billion.
In other recent news, United Parcel Service (NYSE:UPS) reported a dip in its second-quarter earnings, with adjusted profits falling to $1.79 per share from $2.54 per share recorded during the same period last year. The company's second-quarter revenue also saw a 1.1% decline, reaching $21.8 billion. These developments are attributed to decreased demand for small-package delivery and rising labor costs.
UPS has also announced plans to acquire Estafeta Mexicana S.A. de C.V., a leading express delivery company in Mexico, in a strategic move to expand its logistics and delivery services across North America. The transaction is anticipated to be finalized by the end of 2024, subject to regulatory approvals and customary closing conditions.
Analysts at UBS have maintained a Buy rating on UPS, setting a price target of $175, despite a slight downward revision of its second-quarter earnings per share estimate from $2.00 to $1.95. The company also announced the sale of its Coyote Logistics Truck Brokerage business to RXO for $1.025 billion, expected to be completed by the end of the year.
Lastly, UPS announced the departure of its Chief Financial Officer, Brian Newman, and has initiated a search for his replacement. Despite these changes, UPS has reaffirmed its full-year financial guidance. These are among the recent developments at UPS.
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