Labor strife has taken center stage this summer, causing turmoil in various industries. These events, such as the recent strikes by screenwriters and actors, have created buying opportunities for investors. United Parcel Service (UPS), in particular, has seen its stock value affected by labor negotiations.
Recently, UPS reached a five-year labor deal with the International Brotherhood of Teamsters that would result in cumulative wage increases of approximately 30% over five years. This news followed concerns about possible work stoppages and rising labor costs. General Motors (GM) is also currently negotiating with the United Auto Workers.
The impact of strike possibilities and labor deals on stocks can be significant. Initially, investors may overlook the potential for a work stoppage, but as negotiations progress, concerns about strikes and higher costs start to emerge. This pessimism surrounding labor negotiations creates uncertainties for investors.
Despite these challenges, there is room for optimism regarding UPS. Labor expenses are an essential and unavoidable aspect of doing business, and a favorable deal should be seen as good news as it helps avoid costly strikes. While concerns exist about higher costs, Teamsters President Sean O’Brien’s estimation of a $30 billion increase in wages is cumulative throughout the contract’s duration. When broken down annually, this equates to an average wage increase of approximately 5% to 6%.
In conclusion, the ongoing summer of strikes presents both risks and opportunities for investors. By carefully navigating these labor-related challenges, nimble investors can capitalize on buying opportunities in companies like UPS.
Opportunities Ahead for UPS and UAW Negotiations
As UPS (United Parcel Service) heads towards the completion of its deal, investors are eagerly awaiting updates on the UAW (United Automobile Workers) negotiations. While UPS hasn’t seen a significant impact on its earnings estimates yet, analysts anticipate potential changes after the company’s second-quarter earnings conference call scheduled for August 8.
Nevertheless, expectations for wage growth in the new contract remain modest, considering the persistent inflation in recent years. Analyst Amit Mehrotra from Deutsche Bank maintains a positive outlook on UPS, believing that the management wouldn’t enter into a deal that impedes the company’s ability to achieve profitable growth. With a Buy rating and a $212 price target, Mehrotra shares optimism for the stock.
While UPS’s deal progresses towards its conclusion with ongoing union member voting throughout August, attention now shifts to the UAW negotiations. Labor agreements between the union and key players such as GM (General Motors), Ford Motor, and Stellantis are set to expire in September, prompting discussions between the parties involved.
Should GM encounter pressure in the stock market soon, it wouldn’t be without precedent. In 2019, the company experienced a strike that resulted in underperformance compared to the S&P 500 by nearly seven percentage points in August. The downward trend continued into September during the UAW strike. However, when an agreement was finally reached in late October, GM rebounded and outperformed the S&P 500 in November and December.
BofA Securities analyst John Murphy remains optimistic about both GM and Ford, considering the potential buying opportunities presented by historical trends. Murphy holds Buy ratings on both stocks and has set a target price of $72 per share for GM, reflecting an 88% increase from its recent value of $38.34. Meanwhile, Ford’s target price stands at $22, representing a 67% gain from its recent value of $13.16.
In conclusion, as UPS progresses towards finalizing its deal and attention shifts to the upcoming UAW negotiations, investors should keep a watchful eye on potential developments in these areas.
This too shall pass.
