An analyst at Evercore ISI recently lowered the price targets of UPS (UPS 0.75%) and FedEx (FDX 1.48%) ahead of the latter's fourth-quarter 2024 earnings report. Evercore's earnings estimates for both companies decreased over concerns about declining domestic demand.
FedEx's recent earnings are now in. Given what was reported, does Evercore's price target cut from $157 to $142 for UPS still make sense?
UPS price cut
FedEx's earnings report was better than the Wall Street consensus estimate, and that bodes well for UPS. Revenue and earnings were slightly ahead of expectations, and the guidance for fiscal 2025 for low- to mid-single-digit revenue growth is positive. FedEx's management also expects volume demand to improve through the year.
That reads well for UPS because the No. 1 thing UPS needs right now is better volume demand. Moreover, UPS management has already told investors that it expects its domestic average daily volumes in the second quarter to be "slightly positive."
UPS has a better volume growth opportunity in calendar 2024. Last year, it lost delivery volumes due to customer concerns over possible strike action in a then-unresolved contract negotiation. As such, it can grow volumes by winning back lost customers and has easier comparisons with last year to overcome.
A new price target for UPS
It's important to note that the new price target for UPS still implies a 4.4% upside potential over the next 12 months, but I think it's too conservative. The current Wall Street consensus calls for $8.19 in earnings per share (EPS) in 2024, putting UPS at 16.4 times estimated earnings based on the current price. That's an excellent valuation for a company hitting low-point-in-the-cycle earnings this year.
While UPS hitting the EPS estimate is not certain, FedEx's recent results give some confidence that the delivery volume environment is improving, albeit tentatively, and that's a plus for UPS, so it would be premature to sell the stock at this level.
