United Parcel Service Inc. (UPS) Quarterly Valuation – April 2014

200px-United_Parcel_Service_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how United Parcel Service (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. (UPS) is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. The Company has three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S.A. In February 2014, United Parcel Service acquired Polar Speed Distribution Ltd.

UPS Chart

UPS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $59.52
MG Opinion Overvalued
Value Based on 3% Growth $45.44
Value Based on 0% Growth $26.64
Market Implied Growth Rate 11.53%
NCAV -$17.72
PEmg 31.56
Current Ratio 1.88
PB Ratio 14.10

Balance Sheet – 12/31/2013

Current Assets $13,387,000,000
Current Liabilities $7,131,000,000
Total Debt $10,824,000,000
Total Assets $36,212,000,000
Intangible Assets $2,965,000,000
Total Liabilities $29,738,000,000
Outstanding Shares 923,000,000

Earnings Per Share

2013 $4.61
2012 $0.83
2011 $3.84
2010 $3.48
2009 $2.16
2008 $2.94
2007 $0.36
2006 $3.86
2005 $3.47
2004 $2.93
2003 $2.55

Earnings Per Share – ModernGraham

2013 $3.13
2012 $2.48
2011 $3.06
2010 $2.63
2009 $2.32
2008 $2.51

Dividend History

UPS Dividend Chart

UPS Dividend data by YCharts


United Parcel Service qualifies for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios, and the insufficient earnings growth over the ten year period.  The Enterprising Investor’s only concern is the high level of debt relative to the current assets.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing it to its competitors through a review of ModernGraham’s valuation of Fedex Corp (FDX) and a review of 5 Outstanding Dow Components.  From a valuation side of things, the company appears to be overvalued after having grown its EPSmg (normalized earnings) from $2.32 in 2009 to only $3.13 for 2013.  This low level of growth does not support the market’s implied estimate of 11.53% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on United Parcel Service (UPS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in United Parcel Service (UPS) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.