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The Reasons Why UPS Stock Dropped Today

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In today’s early trading, the stock price of the global leader in package transportation, UPS (NYSE:UPS), fell by more than 2%. This decision was made after an analyst at a prominent company, Citi’s Christian Wetherbee, suggested purchasing the transportation shares.

recommendation to buy is never a bad idea, but the circumstances around this advice are pretty essential. Wetherbee suggests that investors engage in a “pair trade” strategy in which they purchase UPS (NYSE:UPS) and sell short FedEx. In other words, even if UPS stock falls, FedEx stock will likely fall even further, and investors will still make money from the investment even if UPS stock declines.

Wetherbee thinks that the deteriorating macroeconomic situation will lead to weaker volumes at FedEx and UPS (NYSE:UPS), and the latter is better positioned to deal with it. This is Wetherbee’s logic.

Then what?

The claim that there is some validity to UPS (NYSE:UPS) is in a stronger competitive position than FedEx. After all, UPS is already picking and choosing which packages to transport more carefully. As a direct consequence, the company sees increases in its income and profitability, even though its volume is decreasing.

However, the comment made by the analyst about how the economy is getting worse is the part of the paper that causes investors the most concern. A sluggish economy will, without a doubt, be detrimental to UPS’s business. For instance, the company has been concentrating on increasing sales with small and medium-sized businesses (SMBs), even though consumer spending has slowed down, and SMBs are not immune to this trend.

What’s Next?

The market has already factored in the possibility of an economic adjustment of some kind, even though it is far from apparent what the degree of the slowdown in consumer spending will be. Meanwhile, UPS (NYSE:UPS) core business is increasing due to the company’s increased focus on key end markets such as small and medium-sized businesses (SMBs) and healthcare, as well as the company’s strategy of being more discriminating regarding e-commerce delivery. As a consequence of this, it is expected to emerge from any forthcoming recession in a more strong shape.

Featured Image – Megapixl © Komkrittor

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