Bank of America upgrades United Parcel Service (UPS.US) rating to "buy" and expects the freight downturn to end.

Bank of America Corp analysts on Thursday upgraded their rating on United Parcel Service (UPS.US) stock from "Neutral" to "Buy" with a target price of $150. The bank expects the freight downturn to end in 2025, and believes the company's pricing model and cost initiatives could bring profits. Analysts Ken Hoexter and Adam Roszkowski stated in their report, "We believe these profits will offset potential business volume losses as Amazon.com, Inc. (AMZN.US) outsources the remaining portion of its SurePost last mile business from the United States Postal Service, Amazon.com, Inc. revenue continues to decline, and its high-cost Teamster labor contract." According to Bank of America Corp's proprietary results for truckers' survey demand index, analysts believe the freight downturn of nearly three years is coming to an end. The index rose slightly to 59.8 on Friday, reaching its highest level in about three years. Analysts pointed out, "Our survey has always been a leading indicator of transportation demand and indicates that the market is at the crest of growth." While maintaining the $150 price target, United Parcel Service is expected to continue its trend of cost control and pricing focus until the fourth quarter of 2024. Bank of America Corp expects UPS earnings per share (EPS) to increase by 4% year-on-year to $2.56 in the fourth quarter of 2024, slightly higher than the market's general expectation of $2.52. In the previous six quarters, the company's EPS has on average declined by 33% year-on-year. Bank of America Corp is optimistic about UPS' prospects, benefiting from the company's Fit To Serve cost-cutting model, including layoffs and automation through facility closures. The report also notes that UPS has adopted a more aggressive dynamic pricing strategy, such as raising rates for low-value Chinese e-commerce sellers starting from the fourth quarter of 2024. Analysts anticipate that improvements in freight activity will help UPS' performance, predicting that domestic freight volume will grow for the third consecutive quarter after a period of decline. Freight volume growth, coupled with cost reductions and a focus on earnings, is expected to help UPS' domestic operating profit margin approach its nearly 10% target by the end of the year, with a target of 9.5% in the fourth quarter of 2024. Looking ahead to 2025, Bank of America Corp projects UPS' domestic revenue to reach $63 billion, a 5% year-on-year increase, and expects the domestic operating profit margin to increase by 110 basis points to 10.7%. The bank's target price for UPS stock is $150, below the midpoint of UPS' historical price-to-earnings range, reflecting a balance between improving macroeconomic conditions and the company's strategic rationalization of costs and pricing focus.