Bank of America upgrades United Parcel (UPS.US) to "buy" as it expects the freight recession to come to an end.

Analysts at Bank of America raised their rating on United Parcel (UPS.US) to "buy" from "neutral" on Thursday, with a price target of $150. The firm expects the freight recession to end in 2025 and that the company's pricing model and cost initiatives could bring benefits.

The analysts, Ken Hoexter and Adam Roszkowski, said in a note: "We believe these benefits will offset potential volume losses as Amazon (AMZN.US) outsources the remaining SurePost last-mile business from the U.S. Postal Service, as well as Amazon's continued revenue decline and its high-cost Teamster labor contract."

Based on proprietary results from the Bank of America truckload carrier survey demand indicator, which rose slightly to 59.8 on Friday, the analysts believe the freight recession, which has lasted for nearly three years, is about to end. The indicator, which historically has been a leading indicator of transportation demand, suggests the market is on the cusp of growth, the analysts noted.

With the rating upgrade, UPS maintains a price target of $150 and expects the company to continue its cost control and pricing focus trends through the fourth quarter of 2024.

Bank of America expects UPS' EPS to grow 4% year-on-year in the fourth quarter of 2024, to $2.56, slightly above the consensus estimate of $2.52. The company's EPS has averaged a 33% year-on-year decline in the previous six quarters.

Bank of America's bullish outlook for UPS is due to the company's Fit To Serve cost-cutting model, including layoffs and automation through facility closures. The report also noted that UPS has taken a more aggressive dynamic pricing strategy, such as increasing rates for low-value Chinese e-commerce sellers starting in the fourth quarter of 2024.

The analysts expect the improvement in freight activity to help UPS' performance and predict domestic volumes will grow for the third consecutive quarter after a decline. The volume growth, along with cost cuts and a focus on profitability, is expected to help UPS' domestic operating margin approach its near-10% target by the end of the year, with a target of 9.5% in the fourth quarter of 2024.

Bank of America's target price of $150 for UPS is below the midpoint of the company's historical price-to-earnings range, reflecting a balance between the improving macroeconomic environment and the company's strategic cost rationalization and pricing focus.