Freight Stocks

United Parcel Service Inc Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  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. (UPS) is a package delivery company. The Company is a provider of global supply chain management solutions. It delivers packages each business day in over 220 countries and territories. The Company operates in three segments: U.S. Domestic Package, International Package, and Supply Chain & Freight. The Company offers a spectrum of the United States domestic guaranteed ground and air package transportation services. The Company’s International Package segment includes the small package operations in Europe, Asia, Canada and Latin America, the Indian sub-continent, the Middle East and Africa. UPS offers a selection of guaranteed day and time-definite international shipping services. The Supply Chain & Freight segment consists of the Company’s forwarding and logistics services, truckload freight brokerage, UPS Freight and its financial offerings through UPS Capital. UPS offers a portfolio of guaranteed and non-guaranteed global air freight services.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – February 2017

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 $94,445,121,391 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 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 78.48% Pass
6. Moderate PEmg Ratio PEmg < 20 22.47 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 219.18 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 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.08 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

EPSmg $4.78
MG Growth Estimate 8.02%
MG Value $117.21
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $69.26
MG Value based on 0% Growth $40.60
Market Implied Growth Rate 6.99%
Current Price $107.34
% of Intrinsic Value 91.58%

United Parcel Service, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $3.11 in 2013 to an estimated $4.78 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 6.99% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into United Parcel Service, Inc. revealed the company was trading above its Graham Number of $8.02. The company pays a dividend of $3.12 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 22.47, which was above the industry average of 22.36. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-30.35.

United Parcel Service, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$30.35
Graham Number $8.02
PEmg 22.47
Current Ratio 1.13
PB Ratio 219.18
Current Dividend $3.12
Dividend Yield 2.91%
Number of Consecutive Years of Dividend Growth 8

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Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $13,388,000,000
Total Current Liabilities $11,855,000,000
Long-Term Debt $12,394,000,000
Total Assets $40,401,000,000
Intangible Assets $0
Total Liabilities $39,972,000,000
Shares Outstanding (Diluted Average) 876,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.79
Dec2016 $3.87
Dec2015 $5.35
Dec2014 $3.28
Dec2013 $4.61
Dec2012 $0.83
Dec2011 $3.84
Dec2010 $3.33
Dec2009 $2.14
Dec2008 $2.94
Dec2007 $0.36
Dec2006 $3.86
Dec2005 $3.47
Dec2004 $2.93
Dec2003 $2.55
Dec2002 $2.81
Dec2001 $2.10
Dec2000 $2.50
Dec1999 $0.77
Dec1998 $1.57

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.78
Dec2016 $4.04
Dec2015 $3.95
Dec2014 $3.22
Dec2013 $3.11
Dec2012 $2.45
Dec2011 $3.01
Dec2010 $2.57
Dec2009 $2.32
Dec2008 $2.51
Dec2007 $2.40
Dec2006 $3.33
Dec2005 $2.96
Dec2004 $2.67
Dec2003 $2.40
Dec2002 $2.20
Dec2001 $1.73

Recommended Reading:

Other ModernGraham posts about the company

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

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FedEx Corp Valuation – November 2015 Update $FDX
United Parcel Service Inc. Valuation – October 2015 Update $UPS

Disclaimer:

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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