Company Description: United Parcel Service, Inc. is the world's largest express delivery company, UPS has established itself as a facilitator of e-commerce.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
UPS is trading at a discount to 1.) and 3.) above. Since UPS's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 21.3% premium to its calculated fair value of $83.75. UPS did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
UPS earned no Stars in this section. The company has paid a cash dividend to shareholders every year since 2000 and has increased its dividend payments for 9 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $1,716 is below the $2,600 target I look for in a stock that has increased dividends as long as UPS has. The stock's current yield of 3.58% exceeds the 3.01% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: FedEx Corporation (FDX) with a 1.5% yield, Deutsche Post AG (DPSGY) with a 4.7% yield and Air T, Inc. (AIRT) with a 0.0%.
Conclusion: UPS did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks UPS as a 0-Star Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $85.51 before UPS's NPV MMA Differential increased to the $2,600 minimum that I look for in a stock with 9 years of consecutive dividend increases. At that price the stock would yield 4.3%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $2,600 NPV MMA Differential, the calculated rate is 9.3%. This dividend growth rate is higher than the 7.7% used in this analysis, thus providing no margin of safety. UPS has a risk rating of 2.25 which classifies it as a Medium risk stock.
UPS is geographically diversified with an expanding revenue base and a track record of growing its earnings. Its Free Cash Flow Payout of 669% (up from 421%) is not sustainable over the long-term, and it Debt To Total Capital of 87% (down from 93%) is well above my desired maximum. In addition, it's trading at a significant premium to its calculated fair price of $83.75. With all these factors considered, I will wait for a more opportune time before initiating a position in the company.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in UPS (0.0% of my Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio Holdings here.
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Tags: UPS, FDX, DPSGY, AIRT,
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