Tuesday, December 16, 2008

United Parcel Service (NYSE:UPS): Downgraded to Underperform at Merrill Lynch

I wanted to highlight you the Merrill Lynch downgrade on United Parcel Service (NYSE:UPS). It's a nasty one.

Merrill is reducing their opinion on UPS’ shares to Underperform from Neutral and lower price objective to $44 from $54. They are reducing 2009 and 2010 EPS estimates 12% and 10%, to $3.15 and $3.70, from $3.58 and $4.09, as they further reduce volume and margin targets.

While they believe UPS, which owns 50% of the market, will win its fair share of DHL’s business (represents ~5%-6% of the market), they believe volumes have fallen precipitously over recent weeks, causing a further pressure in targets. Firm targets domestic volumes to fall 1% in 2009 (from flat) and domestic operating margins will fall 110 bps to 11.5%, owing to the weak economy. The price target is based on a 14x target multiple of 2009 EPS estimate.

Notablecalls: I think UPS will get whacked on this call as:

1) MLCO has uncovered new information about UPS' business decelerating markedly over the past few weeks

2) MLCO's tgt price is way below current mkt price

3) MLCO has the largest customer base - their calls move the mkt.

I suspect $49's are in the cards today. (several points of downside over the next week or so)

No comments: