Why UPS Stock Just Dropped

What happened

Last week, an earnings warning from FedEx (NYSE: FDX) torpedoed the entire transportation sector, devastating shares of FedEx itself -- and taking the stock of archrival United Parcel Service (NYSE: UPS) down with it.

Today, UPS stock is falling once again -- down 3.2% as of 11:45 a.m. ET -- but don't blame FedEx for today's sell-off. Blame British banker Barclays.

So what

In a note out this morning, reports The Fly, Barclays cut its price target on UPS stock by 10%, to $180 a share, while maintaining an "equal weight" (i.e., hold) rating on the stock.

Explaining its ratings move, Barclays noted that FedEx "clearly failed investors recently" -- but that this is more than just a FedEx problem. "Global data suggest UPS is also in for a rough ride this winter," warned the analyst, and that warrants more caution about the stock price investors should pay for UPS.

Now what

Barclays may be right about that. Recall that last week, at the same time that FedEx stock was getting sold off but not necessarily because FedEx stock was getting sold off, shares of cardboard manufacturers International Paper, WestRock, and Packaging Corp also tumbled on concerns that there's a "massive inventory glut" of cardboard around the world -- a glut that would not have formed if shipping of products (which are, as a rule, packaged in cardboard boxes) remained in high demand.

That bit of additional information does tend to back up Barclays' view that what is certainly a FedEx problem is not only a FedEx problem.

That being said, there's an argument to be made that even if the transportation sector has risks, these risks are baked into UPS's stock price today. Valued at barely 14 times earnings, with superb free cash flow, a projected long term earnings growth rate of 9.3%, and a dividend yield of 3.5%, UPS stock looks very close to fairly priced to me already.

For one of the two biggest and most successful shippers in the world, UPS stock may not necessarily be a "screaming buy" just yet, but it's certainly getting close.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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