Shares of United Parcel Service Inc. posted strong gains on Thursday, after Stifel Nicolaus analyst Bruce Chan said their recent sell-off, despite strong fundamentals and e-commerce growth, offered investors a “good opportunity” to buy.
The UPS stock of the parcel delivery giant,
rose 3.7% in morning trading. It has now rebounded 6.9% from the close to a 5.5-month low of $ 178.42 on October 4, but was still 12.3% below its record-breaking May 7 close of 217, $ 50.
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,
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,
gained 18.7% and the Dow Jones Industrial Average DJIA,
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,
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.