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UPS Earns a Street-Low Price Target on FedEx-like Reset, Amazon Risks

October 3, 2022 9:21 AM EDT
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Morgan Stanley analyst Ravi Shanker slashed the price target on United Parcel Service (NYSE: UPS) to $100 per share (from $148), the lowest on the Street alongside Barclays.

The lowered price target reflects slashed EPS estimates for 2023 and 2024, which now sit below consensus as much as 25% and 35%, respectively. This is because Morgan Stanley analysts project a “larger mean reversion to pre-pandemic levels than before.”

The risks are building for the next year and UPS could follow its peer FedEx (NYSE: FDX) in lowering Street’s expectations, Shanker wrote to clients in a note. Still, UPS’ reset shouldn’t be “anywhere close to that magnitude.”

“Post FDX’s earnings miss/warning last week, we now believe normalized EPS at UPS would be $8-9 vs. $10 before and compared to the pre-pandemic level of $7.50 (giving UPS some credit for operational improvement + healthcare segment gains).”

Moreover, the analyst sees a “significant idiosyncratic risk” from Amazon (NASDAQ: AMZN), which could go "from “Glide Down” to “Glide Out” in 2023." This risk, as well as union contract renegotiations, are not reflected in Morgan Stanley’s new estimates.

“We estimate AMZN could account for35-40% of UPS’s US Domestic volumes. We note that AMZN’s extremely aggressive build out of its Logistics network has now left it with too much capacity in the system that will need to be filled.”

“We believe AMZNL should have enough capacity to insource at least a large part of its volumes from UPS. We also see potential roll out of “Buy with Prime” and AMZN’s new service to enable last-mile delivery for mall-based retailers as competitive risk into 2023,” Shanker added.

UPS shares are down 0.5% in pre-market Monday.

By Senad Karaahmetovic



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