A well-regarded analyst is warming up to United Parcel Service (UPS 0.14%), and investors are taking notice. Shares of the transportation giant were up 4% as of 11 a.m. ET after UBS upgraded the stock from neutral to buy.
Calling a bottom on UPS shares
Shipping is a cyclical business, and UPS investors over the past year have gained first-hand experience of what a down cycle feels like. The company's shares have fallen nearly 30% in the last 12 months due to declining volumes and higher costs.
UPS failed to deliver for investors in the fourth quarter and provided disappointing guidance for 2024. The company also announced a new cost-cutting campaign, including job cuts, aimed at saving about $1 billion annually. It could also seek a buyer for some of its weaker-performing business lines.
Thomas Wadewitz, an analyst at UBS, has seen enough. On Tuesday morning, Wadewitz upgraded UPS shares to buy and raised his price target from $160 to $175.
The analyst wrote that UPS' recently announced cost reduction program should support margin expansion and "attractive" earnings growth. He expects Wall Street to warm to the stock following an upcoming analyst meeting, where management is expected to lay out its plans for the future.
Is now the time to buy UPS shares?
UPS's core business is highly cyclical, and there isn't much the company can do to escape that reality. Its financial results are going to be better when the economy is strong and demand for shipping services is robust.
UPS can't create additional demand for its services. The best it can do is manage through the weak periods. With the shares down big in 2023 and UPS moving to cut costs, there is reason to hope that the stock can begin an upward climb from here.
