UPS (NYSE:UPS) shares are down more than 1% premarket after UBS downgraded the stock to Neutral from Buy and lowered the price target to $185 from $198 per share.
UBS analysts told investors in a note that lower volumes and higher costs mean there will be a long wait for improvement.
The combination of a greater-than-expected decline in Domestic Package volumes (- 12% in June and -11% in July) and clear visibility to significant year 1 Teamster contract cost pressures (we estimate 6% - 8%) create a backdrop of pressure on UPS's Domestic Package margin which is likely to extend through 2Q24," they wrote.
"Domestic Package margin is the greatest lever for UPS's EPS performance and we also view it as a primary driver for the stock price."
The analysts concluded that while the bar reset is "probably healthy" for UPS stock, "considering what appears likely to be a lengthy wait for margin improvement," they have made the decision to lower the rating.