The recent deal between UPS (NYSE:UPS) and the Teamsters union was widely regarded as the saving grace for both. The deal means that Teamsters aren’t out of work and UPS isn’t losing scads of money per day being unable to deliver packages. But for Credit Suisse, the news isn’t so good, and a resulting downgrade sent UPS shares down fractionally in Monday afternoon’s trading.
UPS handed over quite a pile of concessions to the Teamsters, ranging from air conditioning in every vehicle to pay improvements and reduced work hours. That point wasn’t lost on Credit Suisse analyst Ariel Rosa, who noted that the big pile of loot about to be transferred from UPS to its employees will result in a reduction in earnings and profit in the year to come. Rosa pointed out that, based on a “back of the envelope math” analysis suggests between $1.5 billion and $2 billion extra going out to wages. Similarly, that meant a loss of earnings per share between $1.50 and $1.75.
All is not lost for UPS, certainly. A set of “efficiency initiatives” will help, as will, not surprisingly, price hikes to the customer. If the potential for a UPS strike taught us anything, it taught us—as described in a memo from Fedex (NYSE:FDX)—”in the event of a market disruption, no carrier can absorb all UPS volume.” UPS customers will have little choice but to absorb some price hikes; no one carrier can fill in the gap. And certainly, a strike would have cost more. Much more. The Anderson Economic Group estimated that a strike lasting a mere 10 days would have cost UPS itself $816 million. The entire economy, closer to $7.1 billion.
Analysts, as a whole, are split on the overall impact. With seven Buy ratings, six Hold and one Sell, UPS stock is rated a Moderate Buy. Further, UPS stock comes with a 0.31% downside risk thanks to its average price target of $187.
