Al Root

In its fourth-quarter earnings report, United Parcel Service dropped a bombshell on investors, announcing that its Amazon business would be cut in half over the coming 18 months, sending the stock to its worst one-day drop on record.

Now Wall Street is weighing in, adjusting ratings and price targets. They aren't improving.

For starters, there is a downgrade. Baird analyst Garrett Holland, on Friday, downgraded UPS stock to Hold from Buy. He cut his price target to $130 a share from $160.

"It has been a challenging past few years, but execution looked back on track as UPS returned to more resilient performance in Q3/Q4," wrote Holland. "The announcement that Amazon volume is dropping +50% [in 2026] introduces a new multi-year challenge and higher probability the relationship ultimately unwinds altogether."

Sales and operating profit grew in the third and fourth quarters, and things were looking up. Then came Amazon. It accounts for about 12% of UPS's total business.

UPS is walking away from what it characterized as "below [its] average profit profile," believing it will be better off in the long run by replacing the volume with better-paying customers.

That may be the case, but the uncertainty weighed on shares. UPS stock dropped 14.1% on Thursday, the worst daily drop on record according to Dow Jones Market Data.

Thursday's trading is probably why UPS stock isn't reacting to the downgrade. Shares were up 0.3% in premarket trading Friday at $115.21, while S&P 500 and Dow Jones Industrial Average futures were up 0.5% and 0.3%, respectively.

Along with the downgrade, analyst price targets are coming down. UBS lowered its price target to $141 from $170. Wells Fargo cut its target to $128 from $150. Both brokers still rate shares Buy.

Morgan Stanley analyst Ravi Shanker cut his price target to $82 from $100. He kept his Sell rating on shares.

Shanker acknowledges that leaving Amazon could lift an overhang on UPS stock. Investors have long worried that Amazon's internal logistics operations could hurt parcel shippers. That fear was realized on Thursday, but the "biggest part of the overhang may be yet to come," wrote the analyst.

He isn't ready to recommend jumping back into UPS stock yet. Investors will have to decide when that is.

Excluding Amazon, UPS still has some $80 billion in sales, and the stock trades for about 13 times estimated 2026 earnings, a discount to its historical PE ratio of closer to 15 times.

The average analyst price target is now about $139 a share, according to FactSet, down about $11 since the Amazon announcement. Overall, 59% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

January 31, 2025 08:05 ET (13:05 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.