United Parcel Service, Inc. UPS emerged as one of the "most interesting" names in the beaten-up stock market and should be bought by investors at current levels, according to Stifel.
The UPS Analyst
David Ross upgraded UPS from Hold to Buy with a price target lowered from $118 to $104.
The UPS Thesis
UPS is a "stable free cash flow generator" and stands out in the volatile market dominated by low-interest rates, Ross wrote in the upgrade note. UPS stock has seen recent weakness amid coronavirus concerns which could result in lower volumes but management's guidance of more than $5 billion of cash on the balance sheet, the attractive dividend looks to be safe.
Management also guided to $4.3 billion to $4.7 billion of free cash flow this year which would more than cover the $3.5 billion of dividend obligations, the analyst wrote. As such, the company could have cash leftover for some share buybacks.
If the business is impacted by lower volumes and free cash flow comes in at the mid-point of guidance, the company would still be able to cover the dividend payment. The cash on the balance sheet serves as a backup if it needs to "dig into their pockets."
Bottom line, UPS's stock is "compelling enough" at current levels to warrant a bullish stance, even in the current environment.
UPS Price Action
Shares of UPS were trading higher by 4.79% Tuesday at $91.36.
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