UPS(US:UPS) Seeking Alphaยท2024-06-17 14:00Company Overview - United Parcel Service, Inc. (UPS) is a global parcel delivery and supply chain management company with a market cap of $118 billion and over 500,000 employees [2] - The company operates across three segments: U.S. Domestic (66% of FY 2023 revenue), International (20%), and Supply Chain Solutions (14%) [2] - UPS is the world's largest package delivery company, delivering over 20 million packages daily across 120 countries using more than 500 planes and 100,000 vehicles [2] Investment Thesis - The long-term investment thesis for UPS is supported by two key tailwinds: rising global consumption due to population growth and increased wealth, and the significant rise of e-commerce driving demand for point-to-point shipping [2] - The company is well-positioned to benefit from the growing need for logistics services as more goods are shipped directly to consumers [2] Dividend Growth - UPS has increased its dividend for 15 consecutive years, with a 10-year dividend growth rate of 10.1% [3] - The most recent dividend increase was less than 1%, indicating potential volatility in future dividend growth [3] - The stock currently yields 4.8%, which is significantly higher than its five-year average by 190 basis points [4] Revenue and Earnings Growth - UPS's revenue grew from $58.2 billion in FY 2014 to $91 billion in FY 2023, representing a compound annual growth rate (CAGR) of 5.1% [5] - Earnings per share (EPS) increased from $3.28 to $7.80 over the same period, with a CAGR of 10.1% [5] - CFRA forecasts an 11% CAGR in EPS over the next three years, indicating a potential acceleration in growth [5] Financial Position - UPS maintains a solid financial position with a long-term debt/equity ratio of 1.1 and an interest coverage ratio over 10 [6] - The company has an average return on equity (ROE) of 87.7% and a net margin of 8% over the last five years, reflecting robust profitability [6] - UPS faces competitive pressures, particularly from customers like Amazon, which is developing its own delivery network [6] Valuation - The P/E ratio using adjusted TTM EPS is 17.1, which is considered low in the current market [7] - The P/CF ratio of 10.6 and sales multiple of 1.3 are also below their respective five-year averages, indicating the stock may be undervalued [8] - A dividend discount model analysis estimates a fair value of $172.78 for UPS shares, suggesting the stock could be undervalued by approximately 15% [8] Conclusion - UPS is well-positioned for growth in the e-commerce sector, with a strong dividend yield and a history of dividend increases [10] - The company is expected to navigate through competitive pressures while maintaining robust profitability and a solid financial position [10]