10/24/2012
United Parcel Service (NYSE: UPS)
I use UPS & FedEx quite a bit as well as Golden state overnight, DHL, and a few others. The reality of modern consumerism is that it happens more and more frequently both asynchronously and at a distance. Companies like Amazon may have pioneered the new direction purchasing has taken but the model is thriving thanks to the internet. I expect this trend to continue, especially in countries where the middle and upper middle class exist. Lets face it, the people worried about making their mortgage payments are the ones using discount internet retailers not those worried about where there next meal is going to come from. However beyond that, I believe the secondary market (used items) will continue to make strides back to the primary market as it continues to be enabled by providers of retail services.
Price at write up $73.73
Valuation Ratios
Price/Earnings (TTM) . . . . . 21.29x
Price/Sales (TTM) . . . . . . . 1.32x
Price/Book (MRQ) . . . . . . . 9.24x
Price/Cash Flow (TTM) . . . . 12.3
Held by institutions . . . . . . 66.10%
MarketCap 70.7B
Benjamim . . . . . . . . . 3.4: Y/Y increase in EPS, continues to offer positive earnings, ROI around 75% but is improving, Target $85
Patrick . . . . . . . . . . 4/5: Domestic and international earnings are down, B-B stocking is down, but management is dedicated to expanding opportunities.12 month Price target $93
Davison . . . . . . . . . 4/5: Growth & declines in various markets are essentially a wash, but will improve markedly when the economy shows significant improvement. Management is committed to keeping operating costs down. I expect it to reach $94 within 12 months.
Thomas . . . . . . . . . 2.8/5: Currently fairly valued, market perform.
Marcel . . . . . . . . . . 2/5: No new shorts, hold current shorts. Improving but not worth buying.
Logan . . . . . . . . . . 3.8/5: Aggressive accounting, negative earnings growth, but high potential and positive market.
Insiders:
United Parcel Service (NYSE: UPS)
I use UPS & FedEx quite a bit as well as Golden state overnight, DHL, and a few others. The reality of modern consumerism is that it happens more and more frequently both asynchronously and at a distance. Companies like Amazon may have pioneered the new direction purchasing has taken but the model is thriving thanks to the internet. I expect this trend to continue, especially in countries where the middle and upper middle class exist. Lets face it, the people worried about making their mortgage payments are the ones using discount internet retailers not those worried about where there next meal is going to come from. However beyond that, I believe the secondary market (used items) will continue to make strides back to the primary market as it continues to be enabled by providers of retail services.
Price at write up $73.73
Valuation Ratios
Price/Earnings (TTM) . . . . . 21.29x
Price/Sales (TTM) . . . . . . . 1.32x
Price/Book (MRQ) . . . . . . . 9.24x
Price/Cash Flow (TTM) . . . . 12.3
Held by institutions . . . . . . 66.10%
MarketCap 70.7B
Benjamim . . . . . . . . . 3.4: Y/Y increase in EPS, continues to offer positive earnings, ROI around 75% but is improving, Target $85
Patrick . . . . . . . . . . 4/5: Domestic and international earnings are down, B-B stocking is down, but management is dedicated to expanding opportunities.12 month Price target $93
Davison . . . . . . . . . 4/5: Growth & declines in various markets are essentially a wash, but will improve markedly when the economy shows significant improvement. Management is committed to keeping operating costs down. I expect it to reach $94 within 12 months.
Thomas . . . . . . . . . 2.8/5: Currently fairly valued, market perform.
Marcel . . . . . . . . . . 2/5: No new shorts, hold current shorts. Improving but not worth buying.
Logan . . . . . . . . . . 3.8/5: Aggressive accounting, negative earnings growth, but high potential and positive market.
Insiders:
In case you didn't know UPS is a package delivery company specializing in "less-than-truckload" delivery. U.S. delivery accounts for 60% of it's revenue and 85% of those are via UPS ground. International package delivery represents 23% of total revenue.
While businesses in 2012 may have been pressed into keeping tighter margins and delaying restock of inventory this down turn in UPS's supply chain management solutions will continue as physical retail outlets have their their patrons eroded by warehouse and remote sellers like Amazon. Since there is no value added by a "Best buy," "Wal-mart," or "Fry's" there is no reason to purchase from these re-sellers. In the system where a manufacturer sells to a retailer who marks the item up another 20% to 100% and resells it, the direct sales and discount sellers (who mark up less than half the standard amount) will always win to the price conscious (American) consumer. Sure the model isn't completely dominant yet, people still want to see and handle the products they're buying and discount internet retailers haven't properly accommodated that, but that won't stop the brick-and-mortars from going out of business and forcing the issue.
In any event, UPS will see increased shipments if consumption does not decline and businesses will at least be status quo for shippers in the fallout. And in that same breath it must be noted that internet orders are generally lighter weight and lower yielding shipments, but I'd argue that in places where internet sales are replacing brick-and-mortar sales the volume increase will more than offset this (though I have no evidence for this and it would be difficult/impossible to tease out of available information).
In any event, UPS will see increased shipments if consumption does not decline and businesses will at least be status quo for shippers in the fallout. And in that same breath it must be noted that internet orders are generally lighter weight and lower yielding shipments, but I'd argue that in places where internet sales are replacing brick-and-mortar sales the volume increase will more than offset this (though I have no evidence for this and it would be difficult/impossible to tease out of available information).
As currency woes continue any company doing international business in this country will likely be affected within it's external sales, and UPS is no exception and felt it this year with declines in yields both Domestically and Internationally, but if accounted currency neutral then non-Domestic yields were up 3% year over year while Domestic yields were even. While we don't popularly include ourselves as a State with currency woes rest assured we are. Fuel prices will continue to add a volatile but probably competitively negligible though persistent cost (everyone has to pay fuel costs). International sales growth will likely outpace US sales growth in 2013 and beyond which is encouraging as an investor but may not meaningfully contribute to earnings depending on the currencies in question. Hopefully UPS will have broad enough exposure the currency issues will be bore by the consumer and not by the company, this is unrealistic as a point of sale issue but rate hikes would cover it nicely.
I like the acquisition of TNT express to expand presence in Europe and hope similar acquisitions continue to be on the company's addenda.
Conclusion
I've become a big fan of dividends, and UPS's 3.19% dividend isn't bad and has been continually growing which means your relative yield is likely to increase as time marches forward. I also think it gives a nice bit of cushion as you wade in if that's what you choose to do. I think UPS is fairly valued at about $73.00, but with the impending "Fiscal cliff" nonsense I think there will an opportunity to pick it up at a better value at around $67. I'm unlikely to place an order myself in the next 72 hours, but if I were I'd likely have a goal of 1% of my portfolio and buy 0.25% to 0.5% around $72 in until mid November and 0.5% good until killed ending in Febuary at $67. I see a lot of horizontal movement in this stock's future and there are a lot of players in the shipping industry. I look at it like a commodity, I don't care who ships me my items as long as someone does it. I don't care who makes my Hard Drive as long as it's to spec, and I don't care who makes my paper as long as it's mostly white. So without pricing power, UPS is purely a secondary play on other markets which isn't super sexy. I'm hoping that my due diligence will reveal something sexy, and with all of that considered I'd like to get it at around a 15% discount so $59.25 would be ideal but I'd take $63.20 which would be 8x book and my fair price. UPS will probably never hit this, but if it does I'd be a fool not to buy it.
Due dilligance includes FDX, HUBG, ECHO, PKOH