UBS is moving to the sidelines on shipping giant UPS while the company tries to improve margins. The firm downgraded the shipping giant to neutral from buy on Wednesday and lowered its price target to $185 from $198. The new forecast implies just 2.4% upside from Tuesday’s $180.55 close. The company reported disappointing quarterly results on Tuesday that included lower margin and revenue forecasts . UPS said the cost of a new labor contract with employees would weigh on shipping volumes. The company beat on adjusted earnings per share but missed revenue estimates. Analyst Thomas Wadewitz said the headwinds could extend into 2024, as the company’s domestic package business serves as “the greatest lever for UPS’s EPS performance.” “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,” Wadewitz said. The analyst lowered his 2023 and 2024 earnings per share forecasts by 12% to reflect the margin pressure. UBS’ 2024 eps forecast now stands at $10.90 per share down from $12.35. UPS stock has climbed nearly 4% from the start of the year. UPS YTD mountain UPS stock has added 3.8% so far in 2023. — CNBC’s Michael Bloom contributed to this report.
