Stifel On UPS: Wait To Buy This 'Large, Improving Cash Flow Machine'

United Parcel Service, Inc. UPS has exceeded Stifel's price target. As such, investors may want to consider waiting for a better opportunity to buy the "large, improving cash flow machine" of a company.

The Analyst

Stifel's David Ross downgraded UPS from Buy to Hold with an unchanged $118 price target.

The Thesis

UPS reported its second-quarter results last week, which showed a 7% growth in U.S. daily volume activity while a main concern was partly debunked, Ross wrote in the note. Specifically, expectations for Amazon.com, Inc. AMZN to lower its dependency on UPS and other delivery partners in favor of its own network is not playing out as Amazon is adding to UPS's network density.

Amazon could in theory transition from a customer to a rival, but Ross said there is little sign of this happening over the next few years.

Meanwhile, Ross said UPS's 747-8 jets and 767 freighters are likely to come online in the next few years as part of the company's investments to support growing e-commerce activity. This should help UPS sustain its market leading advantage moving forward although at the expense of limiting margin and earnings expansion for the next year at least.

Price Action

Shares of UPS were trading lower by 1.7% at $118.48 Monday afternoon.

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