UPS: Cost Restructuring and Network Optimization Drive Margin Recovery and Support Buy Rating

In a report released today, Thomas Wadewitz from UBS maintained a Buy rating on United Parcel, with a price target of $116.00.

Thomas Wadewitz has given his Buy rating due to a combination of factors that, in his view, support UPS’s earnings power and valuation over the next several years. He expects fourth-quarter earnings to come in roughly in line with expectations despite temporary cost pressure from the MD11 fleet grounding, supported by resilient pricing, solid peak-season volumes, and ongoing cost actions that should allow UPS to meet its domestic margin objectives. While he anticipates some near-term margin softness in the first half of 2026 as Amazon volumes decline and cost reductions lag, he views this as a manageable, timing-related headwind rather than a structural issue.

Wadewitz forecasts that by the second half of 2026, UPS will have rightsized its network and cost base, leading to improving domestic margins, including notable expansion in the fourth quarter as both semi-variable and fixed cost cuts take hold. He also expects incremental profitability from shifting a portion of Ground Saver volume to USPS, which should meaningfully lift domestic operating income as UPS adjusts its delivery footprint. Reflecting these dynamics, he modestly increases his 2026 and 2027 EPS estimates and continues to apply a 15x earnings multiple to his 2027 forecast, supporting a higher price target. In his view, the combination of self-help on costs, margin recovery after the Amazon transition, and an attractive valuation underpins the Buy recommendation on UPS shares.

Wadewitz covers the Industrials sector, focusing on stocks such as United Airlines Holdings, Delta Air Lines, and Expeditors International. According to TipRanks, Wadewitz has an average return of 6.9% and a 55.12% success rate on recommended stocks.