Stifel Likes 'Brown Brown,' Upgrades UPS To Buy

United Parcel Service, Inc. (NYSE: UPS) emerged as one of the "most interesting" names in the beaten-up stock market and should be bought by investors at current levels, according to Stifel.

The UPS Analyst

David Ross upgraded UPS from Hold to Buy with a price target lowered from $118 to $104.

The UPS Thesis

UPS is a "stable free cash flow generator" and stands out in the volatile market dominated by low-interest rates, Ross wrote in the upgrade note. UPS stock has seen recent weakness amid coronavirus concerns which could result in lower volumes but management's guidance of more than $5 billion of cash on the balance sheet, the attractive dividend looks to be safe.

Management also guided to $4.3 billion to $4.7 billion of free cash flow this year which would more than cover the $3.5 billion of dividend obligations, the analyst wrote. As such, the company could have cash leftover for some share buybacks.

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If the business is impacted by lower volumes and free cash flow comes in at the mid-point of guidance, the company would still be able to cover the dividend payment. The cash on the balance sheet serves as a backup if it needs to "dig into their pockets."

Bottom line, UPS's stock is "compelling enough" at current levels to warrant a bullish stance, even in the current environment.

UPS Price Action

Shares of UPS were trading higher by 4.79% Tuesday at $91.36.

Photo by Wynand van Poortvliet on Unsplash