Shares of United Parcel Service, Inc. UPS have lost around 20 percent since the end of January in reaction to concerning capex guidance and ongoing reports Amazon.com, Inc. AMZN is looking to create its own potential rival delivery service.
Investors have valid reasons to look at UPS' capital expenditure guidance and say "there goes my cash!" Ross said in a Tuesday note.
"And that's true — there should not be too much excess cash above the amount needed to cover the dividend [over] the next couple of years," the analyst said. "But just as the stock was too high at $132, we believe it's now too low [at] $106 and will gravitate back up to the middle of that range this year."
UPS investors have concerns with the Teamsters contract that expires at the end of July, but Stifel believes an agreement will be reached, avoiding a strike, the analyst said.
Finally, Amazon remains an important UPS customer, despite chatter about the e-commerce giant developing its own delivery system, Ross said.
"We just don't believe it is in Amazon's best interest to do that, nor do we believe it is consistent with Amazon's operating philosophy and stated strategy."
UPS shares were up more than 3 percent at $109.06 Tuesday afternoon.
Photo courtesy of UPS.
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