A Wells Fargo analyst recently cheered UPS(NYSE: UPS) investors by raising the price target on the stock to $142 from $134 and maintaining an overweight rating. It's a mark of confidence in the company ahead of its third-quarter earnings report on Oct. 24. For reference, the analyst maintained the outlook for UPS' third quarter.
Is the optimism justified?
The analyst's viewpoint on Q3 is interesting because UPS' rival FedEx announced its first-quarter 2025 earnings in mid-September. FedEx promptly lowered its full-year 2025 revenue and earnings guidance due to weakness in the U.S. domestic package market and the higher-margin business-to-business (B2B) market in particular.
That doesn't bode well for UPS, which has already disappointed the market this year by lowering its full-year guidance due to a negative shift in margins. In short, both companies' customers are shifting to lower-margin delivery options, and weakness in the industrial economy is pressuring B2B deliveries.
As such, it's far from certain that UPS will report a Q3 in line with expectations -- something that could pressure the stock over the near term.
Is UPS stock a buy?
The stock is undoubtedly attractive. The company's earnings will improve as it laps the increase in costs associated with a new labor contract that hit its earnings in last year's third quarter. Moreover, delivery volumes are improving, even if they are lower-margin deliveries than management would like. That will help reduce the current overcapacity in the industry that is causing pricing pressure. In addition, UPS is cutting 12,000 jobs this year as it adjusts to relatively lower delivery volumes -- ultimately resulting in a $1 billion cut in costs.
Image source: Getty Images.
That said, anyone buying UPS stock has to be mindful of the near-term risk and the potential for disappointment. The Wells Fargo analyst believes UPS can hit its full-year guidance, and if management confirms it's on track, the stock will likely move higher. Still, cautious investors may want confirmation first before buying in.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
