Melius starts UPS with a Buy, sees company better set up for downturn

As previously reported, Melius Research initiated coverage of UPS (UPS) with a Buy rating and $225 two-year price target. FedEx (FDX) and UPS were natural pandemic winners, but with the pandemic tailwinds subsiding, "the companies find themselves at two different points on a similar path," Melius argues. UPS management has spent the past several years minimizing cyclicality in the business and driving higher pre-tax margins, notes the analyst, who adds that the focus now is to lean into the customer experience and roll out digital capabilities to drive further productivity and leverage. Changes at UPS allow for the network to flex up and down based on the environment, which "should allow for margins to hold up better during a downturn than in the past," the firm contends.