UPS (UPS) Shares Pop on Solid Earnings, New Buy at Jefferies

United Parcel Service (NYSE: UPS) saw its shares gain almost 3% in pre-market trading after the company delivered Q3 profit that beat the average analyst estimate.

UPS delivered a Q3 EPS of $2.99 on revenue of $24.2 billion, which compares to the consensus that called for an EPS of $2.86 on revenue of $24.4 billion. Overall, revenue increased 4.2% YoY, led by U.S. package revenues soaring 8.2%.

The company reaffirmed its full-year forecast for revenue and adjusted operating margin. However, UPS cut its capex forecast to about $5 billion from $5.5 billion.

“The macro environment is very dynamic, but we are on track to achieving our 2022 financial targets,” CEO Carol Tomé said in a press release.

Goldman Sachs analyst Jordan Alliger said:

“We think the critical factors for the call will be to hear management's perspective on forward peak demand given investor concerns regarding consumer demand strength as well as their ability to pull productivity levers to maintain revenue and margin targets despite a slowing economy.”

Cowen analyst Helene Becker added that the 3Q results “fit with view that UPS got ahead of the slowing freight cycle and has a better grip on costs than FedEx.”

Separately, Jefferies initiated research coverage on UPS with a Buy rating and a $190 per share price target.

“We believe UPS is a best-in-class operator that has never been in a better position operationally to respond to a slowdown in demand, has demonstrated a track record of outperforming in prior recessions, and has a clear path to record earnings/ margins post a macro slowdown. Lastly, its high FCF generation enables ample flexibility to return cash to shareholders and grow via M&A,” analyst Stephanie Moore wrote in a client note.

By Senad Karaahmetovic

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