Is UPS Overvalued?

United Parcel Service (UPS) is yet another company trading near a 52-week low. UPS is on the front line of globalisation - and these are challenging times for the world economy. UPS currently delivers more than 15 million packages a day to 6.1 million customers in more than 200 countries and territories around the world. How does the current share price look?

Valuecruncher valuation model of UPS with interactive assumptions

Valuecruncher produces a valuation of US$42.57 for UPS. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 11.6% below the current share price of US$48.13.

Assumptions

• Revenue: Reuters aggregates 12 analysts covering UPS and these analysts have mean estimates of 2008 and 2009 revenues of US$52.8 billion and US$56.4 billion respectively. For our analysis we have used US$52.0 billion in 2008, US$54.0 billion in 2009 and US$58.0 billion in 2010. We are worried about near term global economic conditions - which will impact companies like UPS.
• Profitability: We have used an EBITDA margin of 15.0% flat to 2010.
• Capital Expenditure: We have assumed capital expenditures of US$2.85 billion in 2008 and then US$3.0 billion per annum moving forward.
• Discount Rate: 10.0%. We believe that a discount rate in the 9-10% range is reasonable. Dropping the discount rate to 9% increases the valuation to US$51.75 (7.5% above the current share price).
• Terminal Growth Rate: 3.5%.

Our analysis incorporates the cash and debt the UPS balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

View the full UPS chart at Wikinvest

Disclosure: None.

Comments

[Wall:]

Why did they use a 10% discount rate when trucking in their chart is 9.1% which would point to a value above $50.

2008 Oct 27 08:12 AM