Shares of United Parcel Service Inc. and FedEx Corp. fell in Monday trading after Evercore ISI weighed in with cautious calls on both transportation names.
Evercore analyst Jonathan Chappell downgraded UPS shares
to in-line from outperform Monday. And while he kept an outperform rating on FedEx’s stock
he added it to Evercore’s tactical underperform list, implying a more wary short-term view.
On UPS, he worries about a mix of macroeconomic uncertainty and the stock’s recent outperformance.
“As a global enterprise with significant exposure to the consumer economy, the still-uncertain macro backdrop, especially related to consumer spending, provides further questions about a recovery in both domestic and international volumes and could pressure EPS [earnings per share] estimates” for the second half of the year and into 2023, Chappell wrote.
Additionally, he noted that UPS shares have outperformed the S&P 500
over a three-month span and on a year-to-date basis, such that UPS’s “relative multiple to both the broader market and its closest transport peers is at the high end of historical averages.”
Chappell acknowledged that UPS “has been somewhat of a relative defensive safe-haven equity in prior periods of choppy markets,” but he still worries about the potential for multiple contraction if stock-market unease resumes.
“And if the market powers through, there is still limited upside remaining to our current price target, both on an absolute basis and relative to the remainder of our coverage,” he wrote. Chappell has a $214 price target on the stock.
As for FedEx, Chappell commented that the shares have “had a volatile ride to an effectively in-line performance with the broader market and transport universe year to date.” While the stock “massively” outperformed in June amid news of new board members and a big dividend hike, it lagged in much of the early part of the year and has underperformed more recently “as fears emerge about a potential miss and/or lower in the September 22 earnings release.”
“The macro outlook has done little to ease near-term EPS concerns, with FDX lowering its in-house macro forecasts twice in the last two months, and we now share the worries about a potential miss/lower next month,” he wrote. Over the medium term, however, Chappell likes the company’s earnings runway.