A Wall Street analyst is souring on United Parcel Service (NYSE: UPS), and the stock is losing ground on the news. Shares of UPS traded down 3% as of 1:15 p.m. ET after the stock was downgraded to underweight at Barclays.
No way out of the slow lane
UPS and other shipping companies have been stuck in neutral of late. Concerns about the economy have made large shipping customers cautious, creating soft demand and limiting pricing power. A new UPS labor deal has further complicated the company's outlook, creating difficult year-over-year cost comparisons.
Barclays analyst Brandon Oglenski does not see the situation turning in UPS' favor anytime soon. The analyst downgraded the stock to underweight, from equal weight, and maintained a $120-per-share price target.
Oglenski believes the company's earnings in the quarters to come could be pressured by a "still weak" demand backdrop, and is worried that competition from Amazon and FedEx, two companies that do not have the same union obligations as UPS, could limit long-term profitability.
The analyst also sees limited dividend growth potential, minimizing UPS' attractiveness as an investment.
Is UPS stock a buy?
Oglenski's points on growth are well made, but there still could be an opportunity here for income-focused investors. UPS at these levels offers a dividend yield of almost 5%.
Even if that dividend does not grow substantially in the next few years, it should be sustainable, meaning that investors buying in today can lock in a relatively good payout. Patience will be required, but UPS shares can still pay off for investors.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and FedEx. The Motley Fool recommends Barclays Plc and United Parcel Service. The Motley Fool has a disclosure policy.
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