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Analysts lukewarm to UPS
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November 18, 1999: 6:42 p.m. ET
Initial coverage finds them excited about company, wary of stock price
By Staff Writer Chris Isidore
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NEW YORK (CNNfn) - Wall Street analysts love United Parcel Service, but for the most part they aren't crazy about the prices the stock has already reached its first week since its initial public offering.
Analysts initiated coverage of the stock Thursday, sooner than is possible for many initial public offerings because the company had long filed financial results with the Securities and Exchange Commission. Ratings on the stock ranged from neutral to slightly bullish with only one strong buy among the seven recommendations. The 12-month target prices of the stock ranged from 60 to 80, with an average of 75.
UPS (UPS) was trading at 66-5/16, down 1-3/8, at the 4 p.m. close on Thursday. The Atlanta-based parcel delivery giant had the largest IPO in U.S. history on Nov. 10.
Price the only downside to stock
Even those who were more bearish on the stock generally gave the company top marks.
"I've written less enthusiastic comments on things I rated buy or strong buy. But it's just a very expensive stock," said Paul Schlesinger, analyst at Donaldson, Lufkin and Jenrette Securities in New New York, who has a $60 12-month target price and a neutral "market performance" rating.
Other analysts are expecting to initiate coverage on Friday, with some of them saying on background that a neutral rating was in the works.
A must own?
Of the seven investment banks that initiated coverage Thursday, two, DLJ and Scott & Stringfellow, had neutral ratings, while four houses that were among the lead underwriters -- Merrill Lynch & Co., Morgan Stanley Dean Witter, Salomon Smith Barney and Warburg Dillon Read -- had soft buy recommendations, between their neutral and most aggressive ratings.
The more bullish analyst was Peter Coleman of Banc of America Securities in San Francisco, with a buy recommendation and a 12-month target of 80, which would be is 33 times his 2000 earnings estimate.
"While that multiple is a premium to that of the company's transport comparables, we think that it is warranted given UPS's dominant market position and superior operating performance," Coleman wrote. "Furthermore, we believe UPS is a 'must own' name in the transport sector and investor demand for the stock will remain strong."
But other analysts believe the stock may be cooling off for the time being.
"We anticipate that the stock may take a breather before finding further upward strength from current levels," wrote Scott Flower of Salomon Smith Barney in New York. But he would not be surprised to see some additional gains early next year, and has a 12-month price target of 77.
"Given a solid 4Q earnings outlook, the strong brand identity of UPS with retail investors, and pent-up demand for the shares, we would expect the stock could yet trade higher over the next several months on the positive momentum of near-term results," Flower wrote.
UPS's IPO raised $5.47 billion with 109.4 million shares of the stock priced at 50. Those shares represent 10 percent of the company's shares outstanding. The first trade was at 65, and it closed the first day at 67-1/4.
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