Famed investor Jim Cramer is not all that excited about United Parcel Service Inc (NYSE: UPS) opting to sell its Coyote Logistics business to RXO Inc (NYSE: RXO).
Shares of both companies are still up significantly on Monday.
Here’s why Cramer is dovish on UPS stock
UPS bought Coyote Logistics for about $1.8 billion in 2015. But it’s unloading it to RXO now for $1.03 billion only, as per a press release this morning.
The price of the deal announced today did not sit well with the Mad Money host who said on CNBC’s “Squawk on the Street” today:
It’s good to see them have some cash in, but you don’t own a company that buys something for $1.8 billion in 2015 and sells it for a billion. It’s a company that still doesn’t know what it’s doing.
UPS stock is currently down well over 10% versus the start of 2024.
UPS shares may relinquish today’s gain
RXO will gain immediate access to 97,000 carriers and 15,000 customers now that it’s bought Coyote Logistics from United Parcel Service.
The news, however, is not really a positive for UPS as the aforementioned business is what made its stock a bit more attractive, as per Jim Cramer, who doesn’t expect shares of the multinational to retain today’s gain.
This is one of the reasons why you might have wanted it, because logistics is a higher multiple. Instead, they get rid of it. People are excited for a day and then that’ll be it. UPS is a very tough stock to own.
Note that UPS does pay a rather lucrative dividend yield of 4.69% at writing.
Why did RXO buy Coyote Logistics?
RXO expects the Coyote Logistics acquisition to immediately and significantly boost its adjusted per-share earnings and free cash flow.
“The deal is expected to make RXO the third-largest freight brokerage in North America, moving up five spots”, as per Jason Seidl – a TD Cowen analyst.
Thomas Wadewitz of UBS also called Coyote a good quality asset in his note to clients on Monday. It enables “better visibility to cost of capacity, access to more capacity, and a stronger relationship with large shippers”, he added.
The news arrives a couple months after UPS came in ahead of Street estimates for quarterly profit as cost cuts helped counter weaker demand for package delivery. Its per-share earnings, nonetheless, came in down 35% versus a year ago.
Despite beating analysts’ forecast for profit, the parcel delivery behemoth reported $21.7 billion in quarterly revenue that fell short of expectations by some $200 million. Wall Street currently has a consensus “overweight” rating on UPS stock.
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