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United Parcel Service (NYSE:UPS) is a very good company with a sustainable business model and excellent growth opportunities. However, the stock is very expensive and the leverage is very high. These two factors should dissuade all risk-averse long-term investors from owning this stock.

Some Factors that determine UPS' worth for long-term investors

1. Business Model

UPS is the global leader in logistics, and gains its business through its low cost, but innovative solutions. It maintains its high market share through solutions such as My Choice, outsourced supply chain management, and acquisitions that allow it to expand globally. UPS understands that it must continue to innovate and provide leading-edge solutions to its customers to do well.

UPS maintains its global leadership through innovative solutions such as UPS My Choice, which allows recipients to direct the timing and circumstances of their deliveries. UPS started to offer this solution in 2011, and was unmatched in the industry then. FedEx (NYSE:FDX), its main competitor started to offer a similar solution, The FedEx Delivery manager, last week. But it is a little too late, UPS My Choice had already gained 2.5 million users by January 1, 2013. Generally, companies that innovate get a boost in their image while follower companies lose out.

In addition to the My Choice innovation, the company has constantly invested in various technological solutions. For instance, the company uses Telematics to "determine a truck's performance and condition by capturing data on more than 200 elements, including speed, RPM, oil pressure, seat belt use, number of times the truck is placed in reverse and idling time. Together, improved data and driver coaching help reduce fuel consumption, emissions and maintenance costs, while improving driver safety." It helps "customers experience more consistent pickup times and more reliable deliveries."

To help its international business, UPS attempted to acquire TNT Express, the market leader in logistics in Europe. Even though the European regulators blocked the deal, fearing monopolization of the business in Europe, UPS has found itself another acquisition to to target in Europe, Hungarian pharmaceutical logistics company, CEMELOG. UPS hopes to complete the deal in the second quarter of 2013. Such acquisitions should help UPS maintain its dominance in the industry.

As long as UPS maintains its eye on newer technological solutions, it should have no problems keeping its high market share. Its large integrated network, large number of acquisitions globally, and a good management allow it to realize that goal.

2. Management

The management at the company understands the unique challenges the company faces. Led by its CEO, David Abney, who has been with the company since 1974, when he worked as a part-time package loader, most of the managers have spent their entire careers at the company.

UPS invests in its employees through programs such as Community Internship Program (CIP). Here, the management trainees build housing for the poor, collect clothing for the Salvation Army, and work at a drug rehab center. This training helps them associate better with their subordinates, thus making for a better work environment for everyone.

Strong leadership will be required by the company as it tries to grow in the European and Asian markets. In addition, it also helps the company face challenges from its arch rival, FedEx, which has its founder, Fred Smith, still steering the company.

3. Cash Reserves

At the end of 2012, the company's Current Assets were $15.5 billion, while the Current Liabilities were $8.3 billion. This produced a Current Ratio of less than 2. That ratio seems low considering that long-term investors like to see comfortable liquidity at companies they buy.

In addition, the company has very high leverage. For instance, the debt-to-equity ratio at the company is 2.34. This measure used long-term debt of $11 billion and Shareholder's Equity of $4.7 billion. The Total Liabilities of the company are very high, at $34 billion.

The company does not have good financials and that's a big disappointment considering the good business model and growth opportunities. It seems unlikely that company's high debt-to-equity ratio would come down any time soon. Until then, the long-term investors are advised to stay on the sidelines.

4. Stock Price

The company's PE ratio is astronomically high at 97. The market cap of the company, at $87 billion is close to 20 times the book value. Even though the Forward PE ratio is 15, the dependence on growth for the low Forward PE ratio is astronomical too.

Again, just like the liquidity and leverage data, the market price for the company is bad news for long-term investors. The company should become a lot cheaper in trailing PE ratio figures before the company begins to seem a little more attractive.

Conclusion

The company's good business model and able management make this stock an attractive option. However, the very high debt ratio, high stock price, and below average liquidity figures make it a "NOT BUY" for long-term investors who want to hold this stock for the foreseeable future.

Source: Long-Term Investors Should Avoid United Parcel Service