3. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 44
Cramer mentioned that he has less confidence in United Parcel Service, Inc. (NYSE:UPS). He discussed the company’s higher costs damaging its earnings and briefly reviewed its performance in comparison to its peer, FedEx.
“Why don’t we start with UPS, which has been a very frustrating stock to own for the past couple of years. It’s down 43% from its early 2022 highs. Back in the summer of last year, UPS had to contend with a threat of a crippling Teamster strike. So they blinked and gave the teamsters, what a lot of people feel, is a very generous contract.
Great for the drivers, but the higher costs have done real damage on the earnings front for UPS. At the same time, it sure seems like they’re losing business to FedEx. In the past four quarters, UPS has disappointed three times, FedEx was doing fine till it had a tough last quarter. Just focusing on UPS though, these guys have lowered expectations repeatedly this year. That’s right, slashed estimates.
When the company report’s latest results in July, they delivered a sizable top and bottom line miss and slashed their guidance. Management tried to put a positive spin on things, touting a return to volume growth in the United States, but Wall Street didn’t buy it and the stock plunged 12% in a single session. Hasn’t really come back much since then. Don’t forget even the better-run FedEx reported a difficult quarter in September so it’s hard to be optimistic about UPS headed into the next earnings report in two weeks.”
While Cramer did make a note of the sinking earnings and the market’s reaction to it, he presented a bull case for the stock based on Citi analysts’ coverage of the transportation logistics sector.
“So is there even a bull case for UPS? Actually, yes, and conveniently, we got it from analysts at Citi earlier this week who initiated coverage on the transportation logistics sector starting UPS with a buy, quite surprising, and a $162 price target for what’s a $132 stock today. They point out that UPS has the highest dividend in the group with a strong balance sheet and the company’s now starting to annualize its higher labor costs. So that’s less of an issue going forward. I like that. At the end of the day, management laid out some very bullish long-term financial targets back in March and if the company hit those numbers, well, UPS could be a huge long-term winner, but I say that’s a pretty big if.
Do you really wanna bet on UPS hitting its financial targets when they’ve missed them so frequently over the last year? Normally, this is the kind of stock that would work when the Fed cuts interest rates, but I need to see some better execution before I’m willing to endorse it, and boy, I really want to ’cause I like that yield, but not yet.”
United Parcel Service (NYSE:UPS) is a leading package delivery and logistics company, offering a wide array of services that encompass transportation, distribution, contract logistics, ocean freight, air freight, customs brokerage, and insurance. It has been facing challenges for some time now, including a decline in stock value attributed to inflationary pressures, broader macroeconomic concerns, and the impact of negotiations with the Teamsters Union, which represents approximately 330,000 employees.
The company is preparing for a potential upswing in business during the latter half of the year, driven by a reduction in macro pressures and a focus on servicing healthcare and small to medium-sized enterprises. In a bid to optimize operations, it plans to lay off employees this year while simultaneously investing in new technologies and automation to improve efficiency and reduce costs.
On October 3, Wells Fargo raised the price target on United Parcel Service (NYSE:UPS) to $142 from $134 and maintained an Overweight rating. The adjustment came because the firm expects favorable trends in the third quarter, suggesting that recent pricing actions and volume growth could align with the company’s full-year guidance.
