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$UPS (+0,08%)

UPS Value Investing Analysis


1. Company Overview & Competitive Position:

UPS is one of the largest logistics and package delivery companies in the world, with operations in

over 200 countries. It holds a dominant market share in the U.S. (64% of revenue) and a significant

presence globally. UPS benefits from a strong economic moat due to its vast global network,

substantial scale, and continued investments in premium markets like healthcare logistics. These

attributes create a competitive advantage, making it difficult for new entrants to challenge its

position.


2. Operational Efficiency & Financial Metrics:

- ROIC: 10.23%, exceeding its WACC of 8.87%. This suggests UPS generates returns above its

cost of capital, which is crucial for long-term value creation.

- CapEx to Cash Flow Ratio: Historically below 50%, showing disciplined capital spending relative to

cash flow.

- Debt-to-Equity Ratio: 1.55, indicating moderate leverage but a strong ability to service debt,

supported by an Interest Coverage Ratio of 9.07.


3. Valuation Metrics:

- P/E Ratio: 21.72, reflecting a fair valuation relative to its earnings.

- PEG Ratio: 1.98, which suggests slight overvaluation when factoring in growth projections.

- P/B Ratio: 6.69, indicating UPS trades at a significant premium to its book value.

- Free Cash Flow Yield: 4.08%, signaling a solid capacity to generate cash.


4. Growth Potential:

- Dividend Yield: 4.90% with a 5-year dividend growth rate (CAGR) of 13%. The Chowder Number of

17.90% suggests strong dividend growth, making UPS an appealing option for income-focusedinvestors.

outlook.

- EPS Growth: Projected to grow by 19.38% over the coming year, indicating a healthy earnings


5. Industry & Market Trends:

The logistics and transportation sector is highly competitive and cyclical. UPS faces increasing

competition from e-commerce and tech-driven logistics companies like Amazon. However, UPS's

strategic investments in healthcare logistics and technological advancements offer potential growth

avenues.


6. Risk Factors:

- Company-Specific Risks: UPS has exposure to labor-related issues (e.g., strikes), and while it

maintains solid employee relations, labor negotiations remain a potential risk. Its heavy reliance on

fuel leaves it vulnerable to fuel price fluctuations.

- Market Risks: UPS is cyclical and sensitive to economic downturns that reduce shipping volumes.

However, its diversification into supply chain solutions and healthcare logistics offers some

insulation.

- Geopolitical and Regulatory Risks: The company's global footprint makes it subject to international

regulations and geopolitical tensions, which could impact operations.


7. Technological Capabilities:

UPS has embraced automation and data analytics to improve efficiency. Continued investment in

technology, such as route optimization and logistics tracking, helps maintain its competitive edge.


8. Corporate Governance and ESG:

UPS has committed to ambitious ESG goals, including achieving carbon neutrality by 2050 and

reducing CO2 emissions by 50% per package by 2035. This positions the company favorably in theeyes of ESG-conscious investors.


9. Strategic Partnerships:

UPS has forged strategic partnerships in key growth sectors, including healthcare logistics. While it

continues to benefit from its relationship with Amazon, competition with Amazon's in-house logistics

network could become a future risk.


10. Cyclicality & Economic Sensitivity:

UPS's performance is influenced by global economic cycles. During economic slowdowns, shipping

volumes typically decline, affecting revenue. However, UPS has diversified its revenue streams

through investments in higher-margin areas like healthcare.

Conclusion: Intrinsic Value & Margin of Safety

Based on a DCF analysis using a WACC of 8.87% and a conservative long-term growth rate of

2.5%, UPS's intrinsic value is estimated at $150 - $160 per share, slightly above its current price of

around $133. This suggests that UPS is undervalued, with potential upside.


Final Investment Recommendation:

UPS scores well in key areas such as operational efficiency, dividend growth, and financial stability,

making it an attractive long-term investment for value investors. However, potential risks include

increased competition, labor issues, and economic sensitivity. Given the intrinsic value and current

price, UPS appears to offer a safe margin of entry for investors with a long-term horizon.

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