United Parcel Service (UPS) Stock Downgrade

Shares of United Parcel Service (NYSE: UPS) fell 1.7% in pre-market trading on Monday after Barclays downgraded the stock from "equal weight" to "underweight."

Reasons for Downgrade

The downgrade is attributed to concerns over UPS's long-term margin challenges, which include:
– Increased competition from Amazon (NASDAQ: AMZN) and FedEx (NYSE: FDX)
– Pressure from the growth of lower-margin e-commerce.

Near-term Risks

According to Barclays analysts, UPS faces near-term risks such as:
– Weak parcel demand
– Heightened competition
– Cost-cutting targets that may not fully mitigate these pressures.

Competition from Amazon

Barclays noted that Amazon poses a significant threat as it builds its logistics network, which could threaten UPS's revenue stream.

Earnings Outlook

The downgrade also reflects doubts regarding UPS's earnings for the remainder of 2024, especially following disappointing results from FedEx, which indicated a highly competitive pricing atmosphere.

Profit Growth Challenges

Analysts believe UPS will find it challenging to achieve profit growth, particularly as it integrates the USPS Priority Mail contract, which introduces additional operational costs due to required increases in airline capacity.

Stock Performance

UPS shares closed at $135.93 on Friday, with Barclays reducing its price target to $120, indicating an expected decline of about 12%.