Why UPS stock may blow another tire: Stock of the Day

UPS (UPS) shares have fallen out of favor this year, and that may not change, Barclays analyst Brandon Oglenski warns. The sell-side analyst slashed his rating on UPS to Underweight — or the equivalent of Sell — on Monday, citing a host of fundamental challenges. Chief among them is a weak freight environment and the potential loss of volumes from e-commerce giant Amazon (AMZN). The company could also lose market share to a more efficient rival in FedEx (FDX).

Barclays’s downgrade is the latest black eye on the year for UPS. Shares are down 14% year to date, lagging FedEx’s 8% gain, as the company struggles with a surge in lower-margin e-commerce volumes. Investor sentiment has also been damaged by a surprise earnings miss in July and a deep cut to full-year sales guidance. UPS reports third quarter earnings on October 24, and the Street is bracing for another dose of bad news — potentially another warning.

Video Transcript

Welcome to a new episode of opening bid.

Um Yahoo Finance executive editor Brian Sazi.

This indeed is the podcast that will make you a smarter investor and if you could have fun in the process, well, that is all the better.

Uh before I get to our interview of the day on opening bid have to start with our stock of the day and for me, the stock of the day get ready.

It's Ups United Parcel service coming in uh or getting a downgrade over it.

Barclays, I would say this is a vicious downgrade to underweight.

It is not the norm that you see uh uh UPS uh which is a, an iconic company in the US and around the world slap with an underweight rating, which is the equivalent of a sale.

So the team over at Barclays, uh actually the analyst, Brandon Aleki, uh citing the potential for a weak freight environment, loss of Amazon volumes.

Amazon's about 12% of UPS uh business.

So a big customer there and a more efficient fedex.

So those are the reasons or the drivers behind that UPS upgrade.

But the bigger picture here, this has been a pretty dreadful year for the team over at UPS.

Shares are down 14% year to date.

Shares of fedex up 8% year to date.

And a lot of folks on the street have dumped Ups in a show me story bucket.

Uh, the street has not been happy that the company has taken a more aggressive approach on pricing.

They're sucking in more lower margin ecommerce sales noticeably, uh, from Tu believe that's a new business for them too.

In July they came out and completely whiffed on earnings cut the full year revenue guidance with 1.5 billion.

So it has been a dreadful year for this company which is not the norm for UPS.

So the street by and large is bracing for a potential, uh, another warning from UPS when it reports in just a few days.

That's my stock of the day ups.

Uh, I should note fedex on track to cut $4 billion of cost out of its business over the next 12 months.

That's why the street has warmed up to fedex.