TLDR
- UPS stock rose 1.1% in premarket trading despite BMO Capital downgrading it to Market Perform from Outperform
- The company canceled its planned acquisition of Mexico’s Estafeta due to unmet closing conditions
- BMO lowered UPS price target to $96 from $125, citing slow demand recovery in business-to-business segment
- Stock gained momentum from rival FedEx’s strong Q1 earnings that beat Wall Street estimates
- UPS continues cost-cutting efforts with plans to reduce workforce by 20,000 positions and close 73 buildings
UPS stock climbed 1.1% in premarket trading Friday morning. This came despite receiving a downgrade from BMO Capital Markets.
The logistics company terminated its planned acquisition of Mexico’s Estafeta on Thursday. UPS cited the inability to satisfy all closing conditions in a regulatory filing.
The company first announced the Estafeta deal in July 2024. UPS expected to close the acquisition in the first half of 2025.
Financial terms of the canceled deal were never disclosed. UPS had said the purchase would help achieve its goal of becoming the world’s premium international small package provider.
Analyst Downgrade Weighs on Outlook
BMO Capital downgraded UPS from Outperform to Market Perform on Friday. The firm also cut its price target to $96 from $125.
BMO analysts pointed to an “elusive” recovery in demand. They expressed particular concern about the business-to-business segment.
The analysts noted macroeconomic challenges have increased due to shifting U.S. trade policies. They specifically mentioned the ending of de minimis exemptions affecting cross-border shipments.
Cost savings from UPS’s network realignment are materializing more slowly than expected. The company continues shifting its U.S. domestic operations toward small and medium businesses.
This move away from lower-margin business-to-consumer operations faces execution challenges. Network density issues have emerged as UPS insources its Surepost service.
Cost-Cutting Measures Continue
UPS unveiled cost reduction measures earlier this year to address the volatile trade environment. The company plans to eliminate approximately 20,000 positions in 2024.
The logistics giant will also close 73 leased and owned buildings by year-end. These measures are expected to generate $3.5 billion in total cost savings.
UPS stock has declined 25% over the past six months according to market data. The shares currently trade near their 52-week low.
The company maintains a dividend yield of 7.71%. UPS has raised its dividend for 15 consecutive years.
Retail sentiment on Stocktwits remained neutral at the time of writing. One user expressed confidence in the stock’s recovery potential.
FedEx Results Provide Boost
The premarket gains likely received support from rival FedEx’s fiscal first quarter results. FedEx topped Wall Street estimates on strong domestic demand and effective cost controls.
UPS reported adjusted second-quarter earnings of $1.55 per share. This fell slightly below the consensus estimate of $1.56.
Following the Q2 results, UPS management withdrew its 2025 guidance. The company cited market uncertainty as the reason for pulling forward projections.
UBS maintained its Buy rating on UPS with a $118 price target. The firm cited progress on cost-cutting and strategic adjustments to offset reduced Amazon volumes.
Stifel lowered its price target to $120 from $124 while keeping its Buy rating. The firm acknowledged mixed Q2 results but maintained optimism about the company’s direction.
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