NEW YORK (AP) -- Increasing uncertainty in Europe and an expected slowdown in stock buybacks led Deutsche Bank analyst Justin Yagerman to downgrade shares of United Parcel Service Inc. on Monday.
Yagerman said that although he remains impressed with the Atlanta company's scope, industry-leading returns and "shareholder-friendly attributes" like paying out most of its net income through dividends and share buybacks, he believes the stock has reached its full value. He cut the stock to "Hold" from "Buy." Out of more than 20 analysts that rate UPS, the number of "Hold" ratings versus "Buy" or "Overweight" are virtually even.
In his note to clients, Yagerman said UPS' greater exposure to Europe as compared with smaller rival FedEx Corp. will hurt it going forward. UPS gets about half of its international package revenue from Europe, and the analyst believes that a weaker Euro and broadening economic uncertainty will be stumbling blocks ahead. While Yagerman believes in UPS' growth potential, he urges investors to wait to buy shares until they are less expensive.
European economic health is especially important to UPS, the world's largest package delivery company, now that it is expanding there. UPS in March offered $6.77 billion to buy Dutch rival TNT Express, by far its biggest deal ever.
To pay for that major acquisition, UPS said it will scale back on share buybacks. UPS said it will now buy back up to $5 billion in shares, including $1.5 billion each this year and next year. In September it had said it would buy back at least $8 billion in shares through 2014.
Yagerman cut his earnings expectations for this year and next due to the slowdown in share buybacks and slowing economic growth internationally. He has an $82 price target on the stock, indicating potential a growth expectation of just 4 percent over the next year.
UPS shares were steady at $78.76 per share with 20 minutes left in premarket trading after falling as low as $77.40 earlier.