On Wednesday, Morgan Stanley (NYSE:MS) increased its stock price target on shares of UPS (NYSE:UPS) to $100 from the previous $95, while maintaining an Underweight rating on the stock. The firm's analyst noted that UPS's long-term (LT) financial targets, unveiled during their recent Investor Day, aligned with market expectations in terms of the end goals.
Still, the strategy to achieve these objectives, which hinges on significant pricing-driven revenue growth and mergers and acquisitions (M&A), sparked skepticism about the feasibility of these targets.
The analyst acknowledged the consistency of UPS's broad LT targets with what was anticipated but pointed out a few unexpected elements concerning the approach to achieving those targets.
They appreciated that UPS's management chose not to engage in aggressive cost-cutting measures to reach their financial goals, unlike some competitors in the industry. This decision was based on the understanding that reducing costs is not a solution to revenue challenges.
Despite this, the analyst indicated that there might be a sense of disappointment among investors. This is because the $1.38 billion in implied incremental cost savings by 2026 presented by UPS's management fell short of expectations, being at least half of what was considered the benchmark figure.
The update on UPS's price target follows the company's presentation of its strategic roadmap at the Investor Day, which outlined their plans for growth and operational efficiency over the next few years.
While the company's direction seems clear, the analyst's remarks suggest that there are concerns about the practicality of the plan and whether the anticipated revenue growth can be achieved through the methods proposed by UPS's management.
InvestingPro Insights
As UPS (NYSE:UPS) navigates the path set forth in its strategic roadmap, investors and analysts alike are keeping a close eye on the company's financial health and market position.
According to InvestingPro, UPS has demonstrated a commitment to shareholder returns, having raised its dividend for 14 consecutive years and maintained dividend payments for 26 years, suggesting a stable financial policy that could reassure investors amidst concerns over the company's long-term strategy.
InvestingPro Data reveals a market cap of $122.67 billion and a Price/Earnings (P/E) ratio adjusted for the last twelve months as of Q4 2023 at 16.21, indicating a potentially more attractive valuation compared to the unadjusted P/E ratio of 18.58. Additionally, the company's revenue for the same period stands at $90.96 billion, with a solid gross profit margin of 22.96%, underlining UPS's ability to maintain profitability.
InvestingPro Tips also highlight that UPS is a prominent player in the Air Freight & Logistics industry and operates with a moderate level of debt, factors that could influence investment decisions as they suggest a strong industry standing and a manageable financial structure. For those considering deeper analysis, InvestingPro offers even more insights, with a total of 7 additional tips available for UPS. To explore these insights and benefit from an exclusive offer, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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