UPS Analyst Hikes Holiday, 2016 Estimates Because Of This

• United Parcel Service, Inc. UPS shares have been volatile since January, and have lost 6 percent year-to-date.
• Argus analyst John Eade maintained a Buy rating on the company, with a price target of $115.
• Eade projected robust demand for UPS services during the Holiday season, and the company’s 2016 earnings to be boosted by recent acquisitions.

UPS has reported its 3Q results ahead of expectations. Although revenue was down 0.4 percent to $14.2 billion, total operating profit grew 1.5 percent to $2 billion on the back of cost controls. The company’s EPS was boosted by share buybacks and grew 5 percent to $1.39, exceeding the consensus estimate of $1.37.

Analyst John Eade said, “UPS grew through expansion in the third quarter.” The company acquired Coyote Logistics in July. Coyote’s asset-light, technology-driven business model is expected to boost the utilization of excess capacity at UPS.

UPS indicated that the $1.8 billion acquisition of the largest pure-play truckload brokerage has synergy potential of up to $100 million. The Coyote acquisition is expected to be EPS and cash flow-accretive to UPS in 2016.

Eade believes that UPS is poised to benefit from “a number of positive trends, including improving consumer confidence and stronger global economic conditions.” The company is also benefiting from the continued growth of ecommerce.

The EPS estimate for 2015 has been raised from $5.25 to $5.30, to reflect expectations for a strong 4Q in the US Domestic business. The EPS estimate for 2016 has been raised from estimate from $5.75 to $5.80 to reflect the expected impact of the Coyote acquisition.