J.P. Morgan Maintains DHL Overweight Rating, Raises Target Price to €60

Overview

This report is based on discussions with DHL Group CFO Melanie Kreis at the J.P. Morgan European Industrials Conference. The firm maintains its 'Overweight' rating on DHL Group and raises the December 2027 target price to €60. The core rationale lies in management's confidence in addressing macro and trade policy uncertainties, enhanced network operational resilience, and improved cost structure driven by 'Fit for Growth' initiatives. The report believes that as low base effects materialize, the company is poised to resume organic volume growth and benefit from increased operating leverage. Current valuation levels (~13.5x forward P/E for 2027) offer investors an attractive risk-reward profile.

Core views

Regarding short-term trading trends, management noted that the year-over-year base for Q2 2026 is low, which will support the return of organic growth. As the impact of US trade policy changes is gradually absorbed, and other markets outside Europe and the US maintain positive volume trajectories, the B2B activity backdrop has improved, with growth roughly aligned with global GDP. Recent acceleration in ocean freight demand indicates some front-loading and inventory restocking ahead of potential new tariffs taking effect in July. In terms of costs and efficiency, the 'Fit for Growth' initiative has been fully embedded into the company's daily operations, no longer just a standalone cost project but becoming the norm for productivity and efficiency gains within the organization. Management emphasized maintaining strict cost discipline to ensure revenue growth is captured in the most cost-effective manner. By business segment, DHL Express is preparing to resume organic volume growth, focusing on regions and trade lanes with above-GDP growth such as Southeast Asia, Mexico, and Turkey. Through 'Smart Industrial Growth' initiatives, it aims to increase daily weight and focus on verticals requiring high service quality, such as technology and life sciences. Although tensions in the Persian Gulf may cause short-term disruptions in aviation fuel and capacity, mature fuel surcharge mechanisms can effectively offset incremental costs, with no significant material impact on earnings. DHL Global Forwarding is undergoing a transformation aimed at narrowing the gap with 'best-in-class' performance. Since last year's management change and subsequent restructuring and product adjustments, profitability remains below target levels but is moving in the right direction. Management expressed disappointment at not observing further customer shifts following DSV's integration of Schenker, but this reflects customer caution during market volatility; a more stable future backdrop will help gain market share. Regarding competitive landscape and new technologies, management believes global trade is resilient, with trade flows adapting through route shifts and nearshoring/friend-shoring rather than structural decline. Regarding Amazon's supply chain service announcements, DHL does not view them as a direct competitive threat to its European network. On Artificial Intelligence (AI), management views it as a 'hygiene factor' for back-office productivity rather than a differentiating competitive advantage; true differentiation lies in service offerings and operational execution improvements, with automation and robotics already yielding benefits in forwarding and supply chain divisions. In terms of capital allocation and legal structure, DHL Group has entered a 'financial maturity' phase, shifting focus from revenue to EBITDA, free cash flow, and Return on Invested Capital (ROIC). Priorities include maintaining dividend continuity, multi-year share buybacks, and small acquisitions supporting capabilities in targeted growth areas. Aligning the group's legal structure with its segment reporting structure and renaming it DHL AG provides long-term options for future partnerships or joint ventures and facilitates faster growth and earnings delivery.

Analysis framework

The institution adopted a combined top-down and bottom-up analytical approach. First, meeting feedback confirmed management's strategies for coping with the macro environment and short-term trading trends (such as low base effects and front-loading) to identify performance inflection points. Second, an in-depth analysis of internal operational changes was conducted, particularly the degree of internalization of the 'Fit for Growth' cost program and its impact on operating leverage. Third, each major business division (Express, Forwarding, Supply Chain, etc.) was dissected individually to assess growth drivers, competitive positioning, and transformation progress. Finally, using Sum-of-the-Parts (SOTP) valuation based on 2027 expected EV/EBIT multiples, considering the growth characteristics of different divisions and conglomerate discounts, the target price was derived and compared with current market capitalization to evaluate investment attractiveness.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  Sum-of-the-Parts Valuation

  Values different business segments (e.g., Express, Forwarding, Supply Chain) separately and sums them up, then subtracts headquarters costs and debt, etc. Suitable for diversified enterprises, it more accurately reflects the distinct growth and return characteristics of each segment.

• Corporate Fundamentals & Financial FrameworkROIC–WACC spread

  Return on Invested Capital (ROIC) Orientation

  Management's shift in financial focus to ROIC means the company prioritizes capital efficiency, creating value only when returns exceed the cost of capital, which is a core metric for measuring long-term value creation capability.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Trade Flow Adaptation & Supply-Demand Dynamics

  Analyzes that global trade is not in structural decline but adapts to supply-demand changes through route shifts and nearshoring, while monitoring short-term front-loading impacts on ocean/air freight demand.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• DHL Group (DHLN.DE)

  Beneficiary, Institution Maintains Overweight Rating

  Strengths

  Strong network operational resilience, improved cost structure, Express business focuses on high-growth areas, improved free cash flow supports buybacks and dividends

  Weaknesses

  Global Forwarding profitability still below target levels, high dependence on global economic growth

  Comparison

  Compared to the European logistics sector, offers more attractive GDP+ growth potential and productivity gains from digitalization

  Risks

  Weak global trade demand, slower e-commerce growth, changes in de minimis rules, ineffective cost control, poor fuel cost pass-through, intensified competition, exchange rate fluctuations, labor cost inflation, unresolved German government stake

Key data

• Target Price€60.00December 2027 target price, implying ~14.3% upside
• 2027E Forward P/E13.5xCorresponding to a 12% forward EPS CAGR
• 2026-29E EBIT CAGRc.7%Institutional expectation
• Forward EPS Annualized Growth Rate12%Institutional expectation
• Dividend Yieldc.5%Included in total shareholder return
• SOTP Conglomerate Discount25%Applied to the sum of segment valuations, at the lower end of historical discount ranges

Impact & implications

The research note believes that DHL Group is undervalued by the market at current valuation levels, with attractive medium-term return and growth prospects. With strengthened cost discipline and the resumption of organic growth, the company will demonstrate GDP+ growth potential superior to European logistics peers. Improved free cash flow will support continued share buybacks and dividends, providing investors with attractive Total Shareholder Return (TSR). Adjustments to the legal structure provide flexibility for future strategic collaborations, potentially serving as a long-term value catalyst.

Risks

• Global trade demand (air, ocean, and express) grows weaker than expected, compression of trade-to-GDP relationship
• B2C e-commerce growth weaker than expected, market matures faster than expected
• Headwinds from changes in US and EU de minimis rules
• Weakened cost control capabilities
• Fuel surcharges fail to fully recover potential increases in fuel costs
• Normalization of unit gross margins in air and ocean freight occurs faster and to a greater extent than pre-pandemic levels
• Intensified competition in parcel delivery market
• New entrants in TDI express market
• Lack of capacity/supply discipline in TDI express market leading to weak pricing
• Adverse foreign exchange movements
• Labor cost inflation
• Unresolved risk from German government retaining 16% equity stake

What to watch

• Recovery of organic volume growth, especially performance after Q2 2026
• Continued embedding effect of 'Fit for Growth' cost program in daily operations
• Transformation progress and market share acquisition in DHL Global Forwarding business
• Front-loading and inventory restocking dynamics before potential new US tariffs in July
• Execution of cross-divisional synergies and top-line revenue growth initiatives