United Parcel Service’s (UPS) cost reduction program is expected help its margin expansion and earnings growth despite muted revenue increase, UBS said in a report Tuesday.
The firm said cost reduction through automation in buildings and rationalization of facilities can potentially support over $2 billion of annual cost savings for UPS over the coming years.
UBS projects that UPS’ new cost saving programs can provide improved visibility to margin expansion in the domestic package business.
“Domestic package margin is the most powerful lever for EPS generation for UPS,” the investment firm said. “Cost savings associated with a more efficient terminal network could come from lower facility and labor expense and also from savings in linehaul costs.”
UBS upgraded UPS to buy from neutral and increased price target to $175 from $160.
The company’s shares were up 4% in recent trading.