UPS stock surges after Stifel analyst says it has become cheap enough to buy again

Chan de Stifel upped his buy rating, just about four months after being downgraded to Retain, saying “there is a lot to like about the fundamental history of UPS right now.” He raised his target stock price to $ 224 from $ 210.

“Despite the harshness [year-over-year comparisons], e-commerce continues to generate secular volume growth in the company’s small packaging base unit, and the continued focus on yield management is a boon in an environment with strong short-term rate dynamics. , in our opinion, ”Chan wrote in a research note to clients. .

He added that a disciplined capital allocation strategy, as part of the company’s goal of being “better not bigger”, has helped UPS deliver in an “extremely tight” operating environment. , while its rival FedEx Corp. FDX,
+ 1.13%
is likely to struggle for at least a quarter or two.

“Management has chosen a sacred context to refocus on performance …

UPS stock was up 29.2% year-on-year at the time of its record close in May. Now it is up 12.8% this year, while the stock of rival FedEx has fallen 12.9%. In comparison, the Dow Jones Transportation Average DJT,
+1.08%
gained 18.7% and the Dow Jones Industrial Average DJIA,
+1.37%
has grown 13.9% year-to-date.

“With strong free cash flow and a healthy dividend yield, valuation was our only problem,” Chan wrote.

UPS’s implied dividend yield is 2.14%, well above the implied yields of FedEx of 1.33% and the S&P 500 SPX index,
+1.53%
by 1.37%.

UPS is expected to release its third quarter results on October 26, before the opening bell. The FactSet consensus for earnings per share predicts an increase to $ 2.55 from $ 2.28 a year ago, while revenue is expected to rise 6.5% to $ 22.58 billion.

The company has beaten BPA expectations in the past five quarters, while FedEx has missed the past two quarters.