UPS To Divest Freight Business For $800M; Shares Rise 3%

United Parcel Service has agreed to sell its freight business to TFI International in a deal worth $800 million. Shares advanced almost 3% in Monday’s afternoon trading.

UPS (UPS) said that the decision to divest its freight business was taken following the evaluation of its business portfolio and its strategic positioning of “better not bigger.” The logistics giant expects to incur a pre-tax, non-cash impairment charge of $500 million related to the UPS Freight sale on its consolidated income statement for the year ended December 31, 2020. The transaction is anticipated to close in the second quarter of this year.

Additionally, UPS has also entered into a separate agreement with TFI that will allow UPS Freight to continue to deploy UPS’ domestic package network for five years.

“We’re excited about the future and the opportunities this creates for both UPS and UPS Freight as part of TFI International Inc.,” UPS CEO Carol Tomé stated. “The agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers.”

UPS Freight generated estimated revenue of $3.1 billion in FY20 on an operating loss of $463 million.

The logistics company expects to announce its 4Q20 results on Feb. 2. (See UPS stock analysis on TipRanks)

Earlier this month, Barclays analyst Brandon Oglenski reiterated a Sell rating on the stock but raised the price target from $145 to $155. Oglenski noted that, “solid peak fundamentals point to upside for Q4, but investors will be more focused on profitability.”

Overall, analysts are cautiously optimistic about the stock and the consensus is a Moderate Buy with 9 analysts recommending a Buy, 2 analysts suggesting a Hold, and 3 analysts recommending a Sell. The average price target of $180.15 implies 11.7% upside potential to current levels.