HSBC has moved United Parcel Service Inc. (NYSE: UPS) off its Hold list and into a Buy recommendation, while increasing its 12-month price target to $125 from $100. The decision comes as HSBC's analyst sees improving clarity around shipping volumes and a rebound in margins for the package carrier starting in the second half of 2026, even as near-term conditions remain subdued.
At present, UPS shares trade at $106.24, giving the company a market capitalization of $90.13 billion. In updating its financial model, HSBC trimmed its fiscal 2026 adjusted operating profit estimate by 1% to align with UPS's own guidance, while boosting fiscal 2027 estimates by 5%.
Investors have pushed UPS stock down over the past year. Including dividends, the share price has fallen 15% over the twelve months to date. That performance trails the S&P 500, which gained 16% in the same period, and lags peer gains from FedEx and DHL, reported as 15% and 37% increases respectively over the same timeframe.
From a valuation standpoint, UPS currently trades at 16.3 times earnings. HSBC notes that this multiple sits 0.9 standard deviations below the company's historical mean and represents a 3% discount to FedEx, placing UPS close to one of its steepest relative discounts on record. The firm also highlights what it calls an attractive dividend yield of 6% for 2026. Supporting income credibility, InvestingPro data referenced by analysts shows the company has paid dividends for 27 consecutive years and appears slightly undervalued on a Fair Value basis.
UPS's most recent quarterly disclosure — fourth-quarter 2025 adjusted earnings per share of $2.38 — exceeded both Stephens' and consensus estimates of $2.20. Analysts attributed the beat primarily to strong pricing, even as shipping volumes were noted to be slightly below expectations.
Market responses from other banks and brokers have been varied but generally reflected acknowledgement of pricing strength. BMO Capital raised its price target to $110 from $105 while retaining a Market Perform rating. UBS lifted its target to $125 from $116, though it trimmed its first-quarter earnings forecast citing margin headwinds. Stephens increased its price target to $115 from $113, calling out pricing as a key contributor. Raymond James moved its target modestly lower to $127 and pointed to operational shifts - namely network redesign and reduced customer exposure - as sources of short-term disruption. Bernstein SocGen Group raised its target to $128 from $125, noting margin improvement despite softer volume and revenue.
The mix of analyst revisions underscores competing near-term and medium-term themes: pricing power has supported recent results, while volumes and network transitions present timing risk. HSBC's upgrade signals confidence that volume and margin dynamics will improve later in 2026, but the firm’s modest downward tweak to 2026 operating profit reflects acknowledgement of short-term headwinds.
Summary
HSBC upgraded UPS to Buy and raised its price target to $125, citing improved visibility on volume and margin recovery beginning in H2 2026. The bank slightly reduced its 2026 adjusted operating profit forecast while increasing its 2027 estimate. UPS trades at 16.3 times earnings and yields an estimated 6% for 2026, but the stock has underperformed peers and the broader market over the last year.
Key points
- HSBC upgraded UPS from Hold to Buy and lifted its price target to $125 from $100, reflecting expectations of better volume and margin trends starting in H2 2026.
- HSBC trimmed its FY2026 adjusted operating profit estimate by 1% but raised FY2027 estimates by 5%; the stock trades at 16.3x earnings and is noted to be near a steep relative discount to FedEx.
- Quarterly results showed adjusted EPS of $2.38 for Q4 2025, beating $2.20 estimates due chiefly to pricing strength despite slightly weaker volumes; several other analysts adjusted price targets in response to these dynamics.
Risks and uncertainties
- Near-term volume weakness - Volume trends remain uncertain in the short run and were cited as a weakness in the most recent quarter; this directly affects revenue and network utilization.
- Margin headwinds and network transition - Several firms noted margin pressure and operational disruption tied to network redesign and changes in customer exposure, which could depress near-term profitability.
- Valuation disconnect - While HSBC highlights an attractive dividend yield and a slight undervaluation on Fair Value metrics, the stock's valuation sits below its historical mean and close to a record relative discount versus a key peer, indicating potential market skepticism.
Tags: logistics, shipping, dividend, valuation, earnings