UPS stock rose 9% in morning trading. It has now bounced 6.9% since closing at a - month low of $178.42 on Oct. 4, but was still 12.3% below its May 7 record close of $217.50.
Stifel s Chan raised his rating to buy, just four months after downgrading from holding to buy, saying there s a lot about the fundamental UPS story right now. He boosted his stock price target to $224 from $210.
Despite tough comparisons, e-commerce continues to drive efficient volume growth in the company s core small package unit and continued yield management focus is a boon in an environment with abundant near-term rate momentum, wrote Chan in a research note to clients.
He added that a disciplined capital allocation strategy, as part of UPS's focus on being better not bigger, has helped set UPS to perform in an extremely tight operating environment, while rival FedEx Corp. FDX, is likely to struggle for at least a quarter or two.
Chan Picked a heck of a backdrop to focus on yield with significant capacity tightness bolstering rates and surcharges, and demand and network disruption driving shipper capitulation in our view, to the indicated increases.
UPS stock was up 29,2 % on the year at the time of the record-low in May. Now, it has dropped 12.8% this year, while rival FedEx has up 12.9%. In comparison, Dow Jones Transportation Average DJT has gained 18.7% and the Dow Jones Industrial Average DJIA '' has advanced 13.9% year to date.
With strong cash flow and a healthy dividend yield, valuation has been our only hangup, Chan wrote.
UPS implied dividend yield is 2.14%, well above the implied yields for FedEx of 1.33% and the S&P 500 index SPX of 1.37%.
UPS is scheduled to report the third quarter results on Oct. 26 (before the opening bell). The FactSet consensus on earnings per share is for a rise to $2.55 from $2.28 a year ago, while revenue is projected to increase 6.5% to $22.58 billion.
The company missed EPS expectations for the past five quarters, while FedEx beat the first two quarters with a disappointing quarter by FedEx.