Deutsche Bank initiates UPS at Hold, FedEx at Buy

Investing.com -- Deutsche Bank initiated coverage of the U.S. transportation sector with a selective approach, highlighting heightened risks from trade policies and tariffs. 

The bank’s analysts assigned a Buy rating to FedEx (NYSE:FDX) and a Hold rating to UPS in a note Friday, citing diverging near-term financial trajectories for the two parcel delivery giants.

Deutsche Bank (ETR:DBKGn) is bullish on FedEx, assigning a $337 price target, representing a 36% upside. 

Analysts view FedEx’s DRIVE initiative, which targets $6 billion in pretax savings, as a game-changer. 

"Management have identified an opportunity to improve earnings by over 100%," Deutsche Bank noted, adding that the company has already proven its ability to boost operating profits in a declining revenue environment—something it has only done once before in its 50-year history. 

In fiscal 2024, the company’s operating profits increased by over $870 million, despite a $2.5 billion decline in revenue.

While Deutsche Bank acknowledges UPS's strong management and long-term strategy, it maintains a Hold rating with a $119 price target, implying just 2% upside. 

Analysts praised UPS's "better, not bigger" approach, which prioritizes revenue quality over scale, but flagged significant risks ahead.

One of the biggest concerns is a sharp reduction in UPS’s Amazon (NASDAQ:AMZN) business, which will see a 50%+ decline. 

"We’re concerned about near-/medium-term financial performance in light of a 10 percentage point upcoming reduction of its volume," Deutsche Bank wrote, adding that domestic revenue is expected to decline in fiscal 2025. 

The bank notes that historically, when UPS faced a declining domestic revenue environment, its domestic margins have deteriorated by 300 basis points on average.