HSBC Global Research analysts have upgraded UPS’ rating to ‘buy’ following its improved Q1 results, estimating that its volumes and margins are set to turn around from Q4 2024, as HSBC looks to potentially upgrade its guidance to include the accretive impact of UPS’ recently-awarded USPS postal contract.
Although UPS’ $1.7bn adjusted operating profit for Q1 2024 was down 32% year on year, this was 8% above Bloomberg consensus, notes HSBC, with the ‘revenue miss more than offset by lower-than-expected costs’ and a slowing of pace of volume decline. Positive margin growth are set to improve UPS’ margins from Q2 onwards, helped further by its annual projected cost savings of $1.3bn. In recognition of this, HSBC has raised its 2024-2026 earnings estimate by 1%-2%; implying a 30% year on year growth in the second half of 2024.
Although current HSBC forecasts to not yet include the USPS contract, following ‘a margin recovery and an uplift from the USPS contract,’ confidence in UPS’ 2026 guidance may yet improve’. As UPS expects to complete the onboarding of the contract before this year’s peak season, it will provide more colour on the financial impact of this in its Q2 2024 results.
HSBC: UPS upgraded to ‘buy’ rating
