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UPS: A Value Opportunity

Apr. 01, 2018 7:47 PM ETUnited Parcel Service, Inc. (UPS)49 Comments
Dalton Hicks profile picture
Dalton Hicks


  • Evaluating qualitative aspects surrounding UPS' business that will drive cash flow growth in the future.
  • Running a discounted cash flow analysis on UPS evaluating their potential 1Q21 intrinsic value per share.
  • Evaluating UPS' current dividend and their potential dividend value by 1Q21.


United Parcel Service (NYSE:UPS) has had a rough quarter with its share price tumbling nearly 25%. The price decline associated with UPS was a result of an Amazon (AMZN) announcement to launch their own package delivery service. While Amazon clearly caters to a massive customer base, I still believe UPS has a handful of qualitative aspects, as well as a relatively attractive quantitative evaluation and dividend to make them worthy of taking a second look at.

Qualitative Analysis

A key factor of whether or not a company is investment worthy is, of course, their financial stability. UPS has reduced their unfunded liability by $6,000 (in millions). This reduction is particularly attractive for investors, as that is $6,000 (in millions) worth of liabilities that won’t be taken out of earnings and/or shareholder equity. Any reduction of unfunded liabilities is something to take note of, especially those that amount to $6,000 (in millions).

While UPS has a long-term debt to total asset ratio of .45, they have been investing heavily in their airline segment and global expansion initiatives. This can clearly be seen in their increase in capital expenditures from FY16 to FY17. Their FY16 year-end capital expenditures came to $2,965 (in millions) compared to their FY17 year-end capital expenditures of $5,227 (in millions). Generally, UPS has demonstrated a consistent long-term debt to total asset ratio of .30. UPS also realized a $1,750 (in millions) cash benefit in FY17 at the 35% tax rate. I will discuss the potential of the corporate tax cuts below, however, if UPS can realize a $1,750 (in millions) cash benefit at the 35% tax rate, it will be interesting to see what they can do when paying significantly less in taxes.

UPS is forecasting a significant increase in their FY18 free cash flow in comparison

This article was written by

Dalton Hicks profile picture
My investment analysis is focused on identifying well-established companies trading appreciably under intrinsic value. I believe in deep value, long-term investments. My objective is to generate exceptional returns from well-known, less volatile blue chips. I am a mortgage loan officer, and the head of a limited investment partnership. I hope my contributions and analysis can provide valuable insight to fellow investors.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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