Goldman Sachs Upgrades UPS, William Blair Still Positive

Goldman Sachs on Friday upgraded United Parcel Service, Inc. UPS from Neutral to Buy and raised its price target from $103 to $119.

Analysts led by Tom Kim made the upgrade based on an improved risk-to-reward proposition following the stock’s 9 percent YTD decline which was expected to limit downside risk.

Kim also thought the company’s EPS estimates looked conservative and noted that following its recent EPS beat the stock “barely budged,” leading the analysts “to believe that earnings expectations remain low.”

The analysts felt that UPS had developed “greater pricing discipline” and had recently “walked away from some lower yielding business.”

The pricing discipline was seen as important factor because UPS had “struggled during the last two peak seasons” and recognized “the need to improve its operations by investing further in hub automation and even change its pricing strategies to reflect the impact of e-commerce, especially during the peak days during holiday shipping season,” according to Kim.

A key driver for UPS was ground services as operating profit margins (OPM) had reached an inflection point and were expected to return to the highs of the mid-2000s.

The firm raised its EPS estimate by 4 percent to $5.30 for 2015, at the high-end of company guidance.

William Blair analysts Nate Brochmann and Kyle Dicke also commented on the stock in a note released Thursday.

Brochmann mentioned some of the same themes as the Goldman Sachs analysts and believed the company’s “plan to create a more efficient and flexible system to handle e-commerce shipments more effectively” would “lead to a more profitable model that can support faster growth as e-commerce (both domestic and international) shipments continue to expand.”

Overall, Brochmann remained “positive” on the company and said profitability plans were “seemingly on track.”

William Blair maintained an Outperform rating on UPS and estimated 2015 EPS at $5.14.

United Parcel Service recently traded at $101.91, up 1.23 percent.