UBS analyst Thomas Wadewitz upgraded United Parcel Service (NYSE: UPS) to "Buy" from "Neutral" after raising 2022 EPS estimates and anticipating an attractive upside for the stock.

Wadewitz believes that "rising visibility to pricing and cost gains and increasing EPS expectations can support further attractive upside for the stock".

“We believe UPS can deliver significant EPS growth in 2021 / 2022 in multiple scenarios. A vaccine / cyclical recovery is probably the best scenario for UPS due to a rebound in B2B. This favorable cyclical backdrop was present in 2010 / 2011 when UPS expanded its Domestic margin 350 bp and 250 bp. However, a more prolonged period of normalization would likely support stronger ecommerce growth and we expect UPS to also deliver attractive revenue and EPS growth in this scenario,” Wadewitz wrote in today’s note to clients.

UBS projects EPS 2021 at $9.00 per share higher than the market consensus of $8.21. For 2022, the analyst upgraded EPS to $10.70 from prior $10.00.

“UPS has already initiated an employee buyout program and we expect further meaningful cost takeout actions from their Transformation 2.0 and 3.0 programs. While the cost actions could support upside in 2021, we expect a more fulsome impact in 2022 and we are raising our 2022 by $0.70/share to $10.70/share which reflects about half of our base case net savings estimate from Transformation 2.0/ 3.0 of $1.5 bn & Domestic margin of 11.4%.”

UBS' analyst sees a case for stronger pricing next year.

“Capacity constraints during the 2020 peak season and an increased focus on raising rates at UPS, FDX, and the USPS should support stronger pricing gains in 2021 for UPS. We are forecasting 3% - 4% pricing in 2021 for UPS in Domestic Package relative to ~2% normal historical price.”

Wadewitz has raised his price target for UBS to $214.00 per share from the prior $162.00.