UPS shares down after Barclays downgrade to "underweight" citing margin pressures

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

The downgrade stems from concerns over UPS's long-term margin challenges, including increased competition from Amazon (NASDAQ:AMZN) and FedEx (NYSE:FDX), as well as pressure from lower-margin e-commerce growth.

As per analysts at Barclays, near-term risks for UPS are heightened by weak parcel demand, intensified competition, and cost-cutting targets that may not fully offset these pressures. 

Barclays specifically pointed out that Amazon, which accounts for a major portion of UPS’s revenue, continues to build its own logistics network, posing an insourcing threat.

The downgrade also reflects skepticism around UPS’s earnings outlook for the rest of 2024, particularly in light of recent disappointing results from FedEx, which highlighted a highly competitive pricing environment. 

Barclays analysts expect UPS to struggle with profit growth, especially as the company integrates the USPS Priority Mail contract, which adds operational costs due to required airline capacity increases.

UPS shares had closed at $135.93 on Friday, and Barclays lowered its price target to $120, representing an expected downside of about 12%.