UPS: Poised for Significant Margin Reset

We initiate on UPS with a Strong Buy Rating and $158 PT. United Parcel Service, Inc. is the largest

provider of package delivery and integrated logistics with a reach of 200+ countries and the world's largest ground/air network. Evolving from a cyclical abyss built off freight softness to orchestrate what may prove the most consequential margin reset in modern history: At market cap (EV) of $84.4bn, UPS trades at an unduly discounted 7.1x EV/EBITDA (a TTM low, 36.7% below its historical median and 36.6% below peer median), factoring in a miscreant view of the fundamentals - see the analysis below that reorients risk/reward, revising our PT to $158 (9.5x FY26E EBITDA; 59% upside).

1. Efficiency Reimagined ($3.5bn cost out in EBITDA by '25 w/Incremental runway thru the following year); we model $13.5bn/$14.1bn EBITDA for FY25E/FY26E, a 7-11% Advance vs. Cons. 2) Structural margin expansion of the core U.S. business w/legit flows through the P&L as low-margin Amazon volume is deliberately dialed back; bottoming line impacts our Ests. but is ignored by Street. 3) International contributes at mid-TEEN margins, but ex-China trade remains resilient. Confidence is further compounded by modest capex & no D&A drift, so EBITDA conversion is in check. U.S. tariff risk and labor inflation could linger, but much of the latter is arguably reflected in today's discounted multiple. We see asymmetric upside to our PT, a $158 target (9.5x FY26E EBITDA; 59% upside).

   Margin Mix Rebalancing

   We view UPS’s network automation and "Efficiency Reimagined" program as a profound unlock for long-