United Parcel Service Inc (NYSE:UPS) shares fell this week after the parcel delivery company’s first quarter guidance fell short of market expectations.
Shares of UPS were down 5.2% week-over-week at $149 on Thursday afternoon.
UPS on Tuesday said its 1Q earnings before interest and taxes (EBIT) would be down 40% year-over-year, compared to estimates of a 26% decline from analysts at the Bank of America.
But UPS reiterated its second-half EBIT target which implies a $1 billion step up between 1Q and 2Q, double its past-seven-year average sequential gain, the analysts highlighted.
“The disappointing start highlights a rough path to targets,” they wrote in a note to clients.
They added that UPS had pointed to an aggressive return-to-growth outlook, despite sustained weakness in the small package market.
They also highlighted management’s commentary that the industry has 12 million average daily volume (ADV) of excess capacity, half of which is at USPS, with UPS and peers sharing the remainder.
“The fear of excess capacity and price competition led the stock to fall,” the analysts wrote.
Meanwhile, the analysts noted that UPS’ three-year revenue and EBIT margin targets were above their estimates.
For 2026, the company said it expects revenue from $108 billion to $114 billion or a compound annual growth rate of 6% to 8%. This was above the analysts’ forecast of $105 billion or a 5% compound annual growth rate.
It also set an operating margin target of 13% above the analysts’ estimate of 12%, resulting in an earnings per share (EPS) outlook of approximately $13.40, nearly 20% above their $11.15 target.
“While its outlook set a good stage, the wind was taken out given the near-term EBIT shortfall, the need for a macro rebound to hit targets, and significant excess supply,” the analysts concluded.
They reiterated their ‘Neutral’ rating on UPS stock but lowered their price target from $164 to $158, noting that its long-term opportunity is offset by near-term costs.