Updated from 2:13 p.m. EDTUPS (UPS) - Get Report shares skidded Thursday after a Morgan Stanley transportation analyst lowered his investment rating on the stock, citing concerns about increasing price competition for domestic ground shipments.
The analyst, James Valentine, lowered UPS stock to equal weight from overweight and reduced his 2005 EPS estimate for the company from $3.53 to $3.41, which is a penny below the Wall Street consensus.
"Based on conversations we've had recently, some large shippers are seeing rate reductions of 5% to 10%," Valentine wrote in a research note explaining the downgrade. "We might be willing to look through a more competitive domestic pricing environment if we thought there were positive surprises on other fronts, but in fact the dollar is strengthening, the U.S. Postal Service is gaining momentum, and Asian growth appears to be cooling from last year's robust levels."
Morgan Stanley does and seeks to do business with companies covered in its research reports.
A stronger dollar negatively affects the profits UPS has been repatriating from overseas. UPS shares fell $1.35, or 1.9%, to $71.01.
It hasn't been a good week for the world's biggest package company. On Monday,
disclosed that UPS lost an especially important package -- one containing sensitive account information on 3.9 million of the financial giant's customers.
In January UPS stunned investors with a fourth-quarter profit warning after shipping volume dropped off at the end of the year. The company bounced back and reported a solid first quarter, but some analysts expressed concern about domestic shipping volume, which was virtually flat in that quarter. On May 11, UPS assuaged some fears by reporting second-quarter domestic volume was "well ahead" of expectations.
Despite the downgrade, Valentine says UPS is far from headed for disaster.
"We should note that this is not a downgrade to underweight, as we expect UPS' stock to perform in line with most other freight transportation stocks, led by strong cost control in 2005 and slightly better domestic ground volume growth trends due to heightened efforts to grow its middle market," he wrote.