UPS Streamlines Operations, Cuts Costs For Higher Returns

United Parcel Service UPS is strategically navigating a challenging economic landscape, focusing intensely on internal efficiencies and cost reduction to bolster profitability and deliver higher returns for investors.

Bank of America analyst Ken Hoexter reiterated the Buy rating on United Parcel Service on Wednesday, with a price forecast of $115.

Hoexter described United Parcel Service as one of the three global integrators offering exposure to e-commerce growth, historically trading at mid-to-upper teens Price-to-Earnings (PE) multiples (previously low 20s), supported by mid-20s Return on Invested Capital (ROIC) levels, though recent pressure has emerged.

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This particular target multiple reflects several key positive developments: the company is anticipated to have moved beyond its trough EPS, is actively concentrating on divesting low-margin operations, and is aggressively implementing measures to reduce its structural costs.

With its emphasis on pricing, e-commerce, and global sourcing, and its tendency to move in line with the broader economy, the analyst maintained a Buy rating, citing the company’s strong focus on cost and revenue management.

Despite this, Hoexter reduced second quarter of 2025, 2025, and 2026 EPS projections by 5%-8% to $1.52, $7.00, and $7.70, respectively, citing margin pressure from lost de minimis international express volumes, the phased removal of Amazon.com, Inc. AMZN revenues by mid-2026, and a slow macro recovery.

Per Hoexter, United Parcel Service stock has stayed near the lower end of its 15x–21x historical range amid tariff impacts and Amazon volume declines, though the company continues cutting structural costs.

International margin forecast was lowered to 14.2% from 16%, as US-China volumes dropped more than expected; while other routes are helping, the lost lane was among the most profitable.

The removal of the de minimis rule and April tariff hikes drove a major volume drop.

Domestic margin was slightly adjusted to 7.3% from 7.4%, still in line with United Parcel Service’s view, reflecting mild operating leverage. Hoexter added that the broader demand environment remains subdued.

Hoexter noted that BofA’s Truck Shipper Survey Demand Indicator, closely correlated with ISM Manufacturing, remains near freight recession levels, with the latest reading at 54.9, just above the 54.2 average of past downturns in 2012, 2015, and 2019, and still below the 60 growth threshold.

The analyst highlighted that since the freight recession began in April 2022, the company’s shares have lagged, dropping 45%, compared to a 38% gain in the S&P 500 and a 17% rise in FedEx.

Price Action: UPS shares are trading higher by 0.59% to $105.09 at last check Wednesday.

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