By Paul Ziobro
United Parcel Service Inc. shares look like a safe place to ride out the Coronavirus outbreak, say Citigroup transportation analysts, partly as more people may hunker down and shop more online.
The firm believes that UPS shares, down more than 13% this month compared with a 9% decline for the S&P 500, "have overshot to the downside in the context of Coronavirus fears."
One saving grace for UPS is its large exposure to ecommerce, including getting 11.6% of revenue from Amazon.com Inc. The firm notes the trend toward more people shopping online "is somewhat immune from cyclical economic forces and arguably would see growth in a scenario in which U.S. consumers worry about congregating in public spaces, such as grocery stores and shopping malls."
The firm sees other reasons to find shelter at UPS. As production starts picking up in China, that could mean a rush of goods that need to get to warehouses, factories and shelves quickly, benefitting the delivery giant's freight forwarding business.
UPS's dividend is also yielding about 4.5%, which is both close to historical highs and a wide spread to treasury yields.
UPS does expect to see a quick rebound in China as production picks up. "We are prepared to add additional aircraft and additional resources when we do see that recovery, because we think it'll be a strong recovery," Chief Executive David Abney said in an interview this week with China Global Television Network.
Other transportation companies likely face a tough few months as import demand softens, the firm says, but that could be offset somewhat by the need for speedier airfreight services as global supply chains try to get back on track.
Citigroup ultimately believes that the impact for the group will net out to a per-share earnings decline in the mid single-digit percentage range.
Write to Paul Ziobro at Paul.Ziobro@WSJ.com
(END) Dow Jones Newswires
February 28, 2020 15:41 ET (20:41 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.