Shares of United Parcel Service (UPS) are up $1.40, or 2%, at $67.62, after Morgan Stanley analyst William Greene this morning raised his rating on the stock to “Equal Weight” from “Underweight,” writing that the company’s Q1 performance yesterday — it forecast year profit in line with estimates — showed an “impressive display of operating leverage.” He thinks that operating leverage, and “yield recovery” on deliveries, should outweigh sluggishness in the broader economy.
The next leg up for UPS is the domestic freight business, which has lagged the recovery in international freight.
“We believe freight demand and global trade will surprise to the upside; a major restocking in the US is still in front of us,” writes Greene. “Although int�l airfreight has been strong for months, US restocking can only occur through lower cost surface modes. Therefore, ground parcel, truck, and rail will likely be beneficiaries of the next leg of the recovery.”
Greene’s “base case” for the stock is $78, with potential upside to $85, he writes. He’s not ready to give the stock an “Overweight” rating because he sees more upside in Fedex (FDX) and in rail-freight generally.
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