While United Parcel Service, Inc. UPS's huge package business is characterized by high quality and profitability, the cause for caution stems from the “unusually weak and fragile state of world trade growth,” Loop Capital Markets’ Rick Paterson said in a report.
He initiated coverage with a Hold rating and a price target of $124.
Concerns
There seem to be some concern around Amazon.com, Inc. AMZN deciding to insource versus UPS. Paterson pointed out, however, that the two “can coexist.” He mentioned that the real concern was related to world trade growth, which contributed a third of the company’s earnings, and this had lagged weak world GDP growth over the last four years.
“This weakness has been driven, in part, by the slowing pace of global trade liberalization and into this environment we're about to inject a protectionist U.S. administration with a central campaign pledge to, essentially, raise tariffs. That can't be good for an air freight company,” Paterson commented.
The analyst enumerated two types of risks:
- Missed Opportunities: The Trump administration could impact the pace of trade liberalization in the United States, with events like “the President-elect's intention to withdraw from the Trans-Pacific Partnership (TPP) trade pact and, in all likelihood, abandon negotiations on the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.”
- Proactive Damage: The damage to world trade could be through a withdrawal from NAFTA, labeling China as a currency manipulator and raising tariffs or other trade barriers.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
|---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
