BMO upgrades UPS to 'outperform’ amid improving market conditions

Investing.com -- United Parcel Service Inc (NYSE:UPS) to “outperform” from “marketperform,” amid an improving market condition, moderating cost pressures, and a compelling valuation as drivers for near-term upside.

BMO expects cyclical tailwinds, including a potential recovery in business-to-business (B2B) volumes, to support operating margins.

"After nearly two years of soft B2B demand environment, we expect lower interest rates and a potentially recovering industrial economy to support a return to low single-digit growth in B2B volumes," the note said.

The brokerage highlighted UPS's strategic shift to focus on higher-margin customers in its domestic segment, which it believes will improve the mix of volumes and bolster profitability.

UPS's push into higher-value logistics services, particularly in healthcare, is another factor underpinning BMO's bullish stance. The company aims to double its healthcare logistics business to $20 billion by 2026, up from $10 billion in 2023, through a mix of organic growth and acquisitions.

UPS has expanded its presence in high-growth verticals like cold chain, clinical therapies, and diagnostics, with recent deals such as those for healthcare logistics providers Bomi Group and MNX.

BMO also praised UPS's efforts to capture market share among small- and medium-sized businesses (SMBs), leveraging digital and physical access channels. UPS's SMB market share has grown from 27% in 2021 to 29.4% in Q3 2024, with the company targeting a 40% share over the medium term.