1 financial expert believes UPS's share price could soar to $150. Should investors consider purchasing?
UPS (UPS seeing a 2.47% boost) saw another positive change, with a Wall Street analyst from Argus assigning a $150 price tag to it and shifting its rating from 'hold' to 'buy'.
UPS manages to score a win
Some of this positive sentiment stems from recent figures, which helped put a stop to a series of less-than-impressive income reports. Management had underestimated delivery volumes for 2023, and their second-quarter 2024 earnings report was somewhat disappointing. To illustrate, management reduced their projected full-year adjusted operating profit to $8.74 billion, after previously estimating $9.2 billion to $10.02 billion only a few months ago during their investor day presentation in March.
Nevertheless, in the third quarter, the transport company revised its full-year revenue forecast down from $93 billion to $91 billion, but improved its margin forecast, thus keeping the full-year adjusted operating profit at the same level.
UPS might be navigating rough waters
In essence, UPS managed to expand its margins by decreasing the cost per delivery while increasing the number of deliveries, albeit with a smaller revenue per delivery, which might not perfectly align with their "better, not bigger" operating approach, which emphasizes focusing on specific markets like small and medium-sized businesses (SMBs) and healthcare, and being willing to forego lower-margin deliveries.
Although the change in delivery mix is not optimal, UPS isn't entirely to blame for the weak economic situation. Moreover, the industry is still grappling with the oversupply that was built up during the high-demand periods of lockdowns.
In light of these circumstances, UPS' third-quarter performance was a refreshing turnaround, and it's encouraging Argus and others to think that UPS is making an effort to boost margins through cost reductions, while the industry takes its time to adapt capacity to match the demand environment. This adjustment is expected to enhance the industry's pricing environment, eventually leading to increased revenue per delivery and profitability.
Therefore, UPS appears to be a compelling investment opportunity, as it seems to be on the path to recuperation.
Despite the oversupply in the industry still being a challenge, UPS' strategy of boosting margins through cost reductions and adjusting capacity to match the demand environment is seen as a positive move by analysts. This could potentially lead to increased revenue per delivery and profitability, making UPS an attractive investing opportunity.
Given this optimistic outlook, the shift in Argus' rating of UPS from 'hold' to 'buy' and the $150 price tag they've assigned to it, indicates a belief that UPS' financial situation is improving and that investing in the company could yield profitable returns.
