United Parcel Service Inc. Valuation – October 2015 Update $UPS

Benjamin 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 the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  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 stock analysis showing a specific look at how United Parcel Service Inc. (UPS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): United Parcel Service, Inc. is a package delivery company. The Company is a provider of global supply chain management solutions. It delivers packages in over 220 countries and territories. It also provides control and visibility of customers’ inventories and supply chains via its UPS technology platform. The Company offers transportation, distribution, forwarding, ground freight, ocean freight, air freight, brokerage and financing services. It operates in three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. Its WorldShip is a desktop shipping application that provides middle market and large customers with shipping capabilities. Customers can create custom labels, set up shipment alerts, create and upload customs documentation, track and export shipments, create reports and integrate with their enterprise resource planning and accounting systems. UPS marketplace shipping allows marketplace sellers to ship their orders via www.ups.com or WorldShip.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $92,451,081,739 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 80.73% Pass
6. Moderate PEmg Ratio PEmg < 20 26.68 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 47.79 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.86 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

UPS value Chart October 2015

EPSmg $3.85
MG Growth Estimate 4.16%
MG Value $64.68
Opinion Overvalued
MG Value based on 3% Growth $55.78
MG Value based on 0% Growth $32.70
Market Implied Growth Rate 9.09%
Current Price $102.64
% of Intrinsic Value 158.70%

United Parcel Service Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.01 in 2011 to an estimated $3.85 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 9.09% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the 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 Inc. (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.

Stage 3: Information for Further Research

UPS Charts October 2015

Net Current Asset Value (NCAV) -$23.71
Graham Number $15.74
PEmg 26.68
Current Ratio 1.34
PB Ratio 47.79
Dividend Yield 2.73%
Number of Consecutive Years of Dividend Growth 6



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Most Recent Balance Sheet Figures

Total Current Assets $13,768,000,000
Total Current Liabilities $10,303,000,000
Long-Term Debt $9,900,000,000
Total Assets $37,251,000,000
Intangible Assets $3,092,000,000
Total Liabilities $35,301,000,000
Shares Outstanding (Diluted Average) 908,000,000

Earnings Per Share History

Next Fiscal Year Estimate $5.05
Dec14 $3.28
Dec13 $4.61
Dec12 $0.83
Dec11 $3.84
Dec10 $3.33
Dec09 $2.14
Dec08 $2.94
Dec07 $0.36
Dec06 $3.86
Dec05 $3.47
Dec04 $2.93
Dec03 $2.55
Dec02 $2.81
Dec01 $2.10
Dec00 $2.50
Dec99 $0.77
Dec98 $1.57

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.85
Dec14 $3.22
Dec13 $3.11
Dec12 $2.45
Dec11 $3.01
Dec10 $2.57
Dec09 $2.32
Dec08 $2.51
Dec07 $2.40
Dec06 $3.33
Dec05 $2.96
Dec04 $2.67
Dec03 $2.40
Dec02 $2.20
Dec01 $1.73
Dec00 $1.35
Dec99 $0.68

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 11/8/14
United Parcel Service Inc. Annual Valuation – 2014 $UPS
19 Companies in the Spotlight This Week – 7/26/14
United Parcel Service Quarterly Valuation – July 2014 $UPS
16 Companies in the Spotlight This Week – 4/26/14

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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