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Morgan Stanley Says UPS Risk/Reward Looking Unfavorable

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Morgan Stanley Says UPS Risk/Reward Looking Unfavorable
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Although United Parcel Service, Inc. (NYSE: UPS) reported an in-line quarter and left its guidance unchanged, management commentary highlighted headwinds ahead. Morgan Stanley’s Ravi Shanker maintained an Underweight rating on the company, while reducing the price target from $92 to $91.

Analyst Ravi Shanker commented that cost headwinds would likely limited UPS’s 2017 earnings, and secular headwinds could make long-term targets unreachable.

Performance In 2H, FY17

While leaving its full-year guidance unchanged, management indicated that 3Q could be a challenging quarter with one less operating day and tough worker comps. Ecommerce and peak season could help drive y/y EBIT growth of 9-11 percent in 4Q, Shanker mentioned.

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The EPS estimate for FY16 has been reduced from $5.86 to $5.80. The analyst commented that the FY17 estimates appeared under pressure, adding, “We believe it is debatable as to whether FY17 EBIT can grow at all y/y without a strong macro tailwind.” The EPS estimate for FY17 has been reduced by ~3 percent to $6.00 and stands ~4 percent below the current consensus expectation.

Looking Beyond

For the company to achieve its long-term targets, it would need to generate a 3-year EBIT CAGR of 11-14 percent from 2016 to 2019, as well as a 3-year EPS CAGR of 9.5-16 percent. “Unless we see a significant macro acceleration very soon, these targets look very hard to achieve,” Shanker wrote.

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Latest Ratings for UPS

DateFirmActionFromTo
Dec 2016Aegis CapitalInitiates Coverage OnNeutral
Dec 2016Loop CapitalInitiates Coverage OnHold
Dec 2016JP MorganInitiates Coverage OnNeutral

View More Analyst Ratings for UPS
View the Latest Analyst Ratings

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