UBS downgrades DHL to “sell,” citing tariff headwinds and growth overestimation

UBS Global Research downgraded DHL Group to 'sell' from 'neutral,' lowering its price target to €36, citing underappreciated tariff headwinds and overly optimistic mid-term growth expectations. The firm highlights a significant increase in US import tariffs to 17% and a 25% year-over-year decline in DHL's Transpacific freighter capacity, signaling weakening demand exacerbated by the abolition of the de minimis rule for China imports. UBS also notes DHL's economic returns lag peers and has reduced its EBIT and EPS estimates, believing the market underestimates the profitability pressures from these intensifying trade-related challenges.

Analysis

UBS has downgraded DHL Group to "sell" based on a multi-faceted thesis that the market is underappreciating significant headwinds. The core of the concern stems from US import tariffs, which have surged from 3% to 17%, directly impacting demand. This is substantiated by UBS Evidence Lab data showing a 25% year-over-year decline in DHL's dedicated Transpacific freighter capacity following the recent China-US trade deal. UBS projects these pressures will intensify in the second half of 2025. Consequently, the firm disputes DHL's own 4%-5% annual volume growth forecast, projecting a more conservative 3% due to expected customer down-trading and near-shoring trends limiting long-haul air cargo. Financially, DHL's performance metrics lag key competitors; its Cash Flow Return on Investment (CFROI) of 6.6% is significantly below the 15%-19% generated by asset-light peers DSV and Kuehne + Nagel. While DHL's forward P/E of 13 appears attractive, UBS argues an adjusted ratio of 17.4, accounting for replacement costs, positions it merely in line with European capital goods averages. Reflecting this cautious outlook, UBS has lowered its 2026-2027 EBIT estimates by approximately 3% and projects EPS figures that are below consensus.

Key Decisions for Investors

• Investors should re-evaluate long positions in DHL, as the current valuation may not fully reflect the profitability risks from escalating US tariffs and a potential growth slowdown.
• Monitor key leading indicators such as Transpacific freight volumes and pricing, as the reported 25% decline in freighter capacity signals tangible weakening in demand for DHL's Express division.
• Consider the significant underperformance in economic returns (6.6% CFROI) relative to asset-light peers like DSV and Kuehne + Nagel (15-19% CFROI), which may offer superior capital allocation opportunities within the logistics sector.