If stakeholders can overlook the potential for near-term volatility, Brown should deliver for investors, according to BMO.

United Parcel Service Inc. (UPS) rose on Monday, Oct. 1, after BMO Capital Markets upgraded the package delivery company on its cost efficiency initiatives.

BMO analyst Fadi Chamoun upgraded UPS from Market Perform to Outperform with a $128 price target as there are "a number of positives" that are supportive of upside in the stock.

"While we can't rule out further lumpiness in near-term quarterly results as UPS continues to incur upfront costs to add capacity across its network, implement automation, and other cost efficiency initiatives with medium-term benefits, we believe that at current valuation levels and with a base case [earnings per share compound annual growth rate] in the high-single-digit range in the coming years, the risk/reward is attractive for investors with a medium-term horizon," Chamoun wrote in a Sept. 30 research note.

Shares of UPS rose 1.2% to $118.09 at 11:45 a.m. New York time.

The BMO analyst noted that the economic backdrop, particularly in the U.S., is favorable and that there is an increased focus on improving revenue quality. Analysts at KeyBanc said last week that UPS is positioned to benefit from a stable macroeconomic backdrop.

The Atlanta-based company in mid-September detailed its transformation plan, including its four strategic imperatives: Expansion of high-growth international markets; growing business-to-business and business-to-consumer e-commerce; further penetration of the healthcare and life sciences logistics market; and enhancing services for small- and medium-sized businesses. The plan also includes more than 70 expansion projects for package facilities and the opening of seven new "super hub" automated sorting facilities that will be 30% to 35% more efficient than comparable and less-automated facilities.

UPS expects the actions to save it about $1 billion, and boost adjusted earnings per share to a range of $1 to $1.20 by 2022. The company expects charges of $550 million to $750 million for the transformation initiatives.

"We sense that success in achieving $1.1 billion to $1.3 billion in additional cost savings through the Transformation Plan by 2022 could be a source of upside to estimates, particularly from late 2019 and into 2020," Chamoun said. "We also believe that results from the UPS Transformation plan could exceed UPS's current estimate as visibility into the benefits further improves."

There are 13 Buys, 15 Holds, and two Sell ratings on the stock, according to Bloomberg data.

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