United Parcel Service Inc Valuation – May 2018 $UPS

Company Profile (excerpt from Reuters): United Parcel Service, Inc. (UPS), incorporated on July 15, 1999, is a package delivery company. The Company is a provider of global supply chain management solutions. The Company operates through three segments: U.S. Domestic Package operations, International Package operations, and Supply Chain & Freight operations. As of December 31, 2016, the Company delivered packages in over 220 countries and territories. WorldShip, a desktop shipping application of UPS, provides middle-market and 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 to streamline shipping with real-time connectivity. UPS marketplace shipping, which integrates www.ups.com with eBay, Amazon, Etsy and BigCommerce, allows marketplace sellers to ship their orders through www.ups.com or WorldShip. UPS marketplace shipping provides shipment processing, multiple payment options (including PayPal), order and shipment history and automatic tracking updates. The Company serves the global market for logistics services, which include transportation, distribution, contract logistics, ground freight, ocean freight, air freight, customs brokerage, insurance and financing.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of UPS – May 2018

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 $100,432,797,598 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.22 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 78.63% Pass
6. Moderate PEmg Ratio PEmg < 20 20.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 74.69 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 1.22 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 8.26 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 $5.59
MG Growth Estimate 11.00%
MG Value $170.32
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $80.99
MG Value based on 0% Growth $47.48
Market Implied Growth Rate 6.08%
Current Price $115.38
% of Intrinsic Value 67.74%

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 Undervalued after growing its EPSmg (normalized earnings) from $3.22 in 2014 to an estimated $5.59 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.08% 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 above the price.

At the time of valuation, further research into United Parcel Service, Inc. revealed the company was trading above its Graham Number of $13.68. The company pays a dividend of $3.32 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 20.66, which was below the industry average of 171.35, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-33.91.

United Parcel Service, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$33.91
Graham Number $13.68
PEmg 20.66
Current Ratio 1.22
PB Ratio 74.69
Current Dividend $3.32
Dividend Yield 2.88%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $13,620,000,000
Total Current Liabilities $11,149,000,000
Long-Term Debt $20,409,000,000
Total Assets $44,464,000,000
Intangible Assets $5,918,000,000
Total Liabilities $43,120,000,000
Shares Outstanding (Diluted Average) 870,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.15
Dec2017 $5.61
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 $5.59
Dec2017 $4.72
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

Recommended Reading:

Other ModernGraham posts about the company

United Parcel Service Inc Valuation – February 2017 $UPS
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

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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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