UPS (UPS.US) Stellar Results Ignite Stock Price as Wall Street Analysts Rush to Raise Target Prices

UPS (UPS.US) shares are on track for their best weekly performance since May after the courier giant's third-quarter earnings beat market expectations and it raised its guidance. CEO Carol Tom expects strong holiday-season demand to drive average daily package volume up about 25% quarter over quarter. Wall Street analysts subsequently rushed to raise their target prices. Ahead of Wednesday's U.S. market open, UPS shares edged down 0.5%. So far this week, the stock has gained 4.9% and is headed for a fourth consecutive weekly advance. BofA: Margins Still Have Room to Improve In the view of Bank of America Corp, UPS's margins still have room to grow after the company's third-quarter earnings beat and guidance raise. BofA raised its target price on UPS to $114 from $108, maintaining a "Neutral" rating. The bank expects UPS's profit to improve steadily over the next few years. BofA analysts believe stronger growth in premium services, prudent pricing decisions and improved operational efficiency should help drive earnings growth. Goldman Sachs Group, Inc. raised its target price on UPS to $135 from $132, maintaining a "Buy" rating, implying about 27% upside. Analysts said better-than-expected U.S. revenue per piece and improved international business margins helped UPS's third-quarter earnings beat expectations. CEO: Holiday-Season Demand Expected to Remain Strong On the third-quarter earnings call, UPS CEO Carol Tom said she expects strong shipping demand this holiday shopping season, with rising online shopping demand and package volume expected to support fourth-quarter business. "Turning to the holiday season, the U.S. consumer remains resilient, and the holiday demand outlook is strong. Industry forecasts show holiday online retail sales are expected to grow about 9% on average from last year. About 100-plus U.S. customers account for about 80% of our peak-season package volume. Based on their forecasts, we expect fourth-quarter average daily package volume to grow about 25% from the third quarter." Beyond preparing for the holiday peak, UPS is also advancing a number of adjustments to improve revenue quality and strengthen operating performance. The company has cut lower-margin delivery business, including reducing Amazon.com, Inc.-related volume by about half to free up capacity. Tom said the company is seeking more growth from premium services while adjusting its business mix to support better returns. Retail Sentiment Turns Bullish On the Stocktwits platform, retail sentiment on UPS stock shifted from "bearish" to "bullish." One user said: "UPS voluntarily gave up low-margin volume yet still delivered an earnings beat and raised guidance. Wall Street is finally rewarding a company that is shrinking the right way." Year to date, UPS shares have gained 12%.