Wells Fargo hikes its UPS price target, says delivery giant could see big earnings growth

Published Fri, Mar 3 20237:07 AM EST

United Parcel Service ' earnings growth potential is underappreciated by investors, Wells Fargo said. Analyst Allison Poliniak-Cusic reiterated the package delivery stock as overweight while raising her target share price to $221 from $195. The new target implies upside of roughly 20%. "UPS is making substantial investments in 2023," Poliniak-Cusic said in a note to clients Friday. "In 2024 not only should those investment headwinds fade, but they should generate incremental profit." UPS is expected later this year to announce cost savings plans. Paired with investment into the company's accretive growth that should accelerate in the second half of the year, these plans could be positive catalysts in the second half of the year and bolster optimism for 2024 performance. Headwinds from investments should also fade in 2024 to start generating incremental profit. In turn, that will help drive a more-than-$1-billion increase in EBIT in 2024, according to the consensus model. Volume growth could provide additional gains, she said, meaning there's a potentially underappreciated tailwind. The firm estimates that receding costs can bolster the company's bottom line by as much as $2.30 per share through 2024. A "placeholder" $1 billion headwind due to labor contact overhang has been priced in, though she noted that could change. And despite earnings growth largely being a 2024 story for the company, Poliniak-Cusic said the company could see upside earlier. Still, there are some potential challenges to that story. Poliniak-Cusic said UPS has established credibility on its ability to execute company changes, but the extent of gains from productivity changes are uncertain because they are dependent on how much improvement there is to incremental volumes. But she also noted that productivity improve can generate downside support and create operating leverage, which can help accelerate profit growth in a period of recovery. The stock has gained 6.2% so far this year, turning course from an 18.9% loss. — CNBC's Michael Bloom contributed to this report.