Operational and Financial Challenges Lead to Sell Rating for UPS Amid MD-11 Fleet Grounding

Analyst Ken Hoexter of Bank of America Securities maintained a Sell rating on United Parcel, boosting the price target to $95.00.

Ken Hoexter has given his Sell rating due to a combination of factors impacting United Parcel Service (UPS). A significant incident involving the crash of a UPS MD-11 aircraft in Louisville has led to the grounding of the entire MD-11 fleet, which accounts for approximately 13% of UPS’s revenue capacity. This operational disruption is compounded by the tragic loss of life and the temporary suspension of operations at UPS’s global sort center, Worldport, affecting the company’s ability to maintain its delivery schedules.
Additionally, the financial implications of this incident are notable. The grounding of the MD-11 fleet necessitates contingency plans that may involve costly leasing of replacement aircraft, which could further strain UPS’s financials. Despite potential cost savings from reduced operational expenses, the need to lease alternative aircraft could result in significant monthly expenses. These challenges, coupled with a decline in domestic air volumes and excess capacity, contribute to the underperformance rating, as UPS’s ability to manage these disruptions and maintain profitability is in question.

In another report released on October 29, Barclays also maintained a Sell rating on the stock with a $80.00 price target.

Based on the recent corporate insider activity of 16 insiders, corporate insider sentiment is positive on the stock. This means that over the past quarter there has been an increase of insiders buying their shares of UPS in relation to earlier this year.