Company Spotlight - United Parcel Service |  - Co. Spotlights available via RSS feed
| If You Believe |  
|
| | HURN | $69.50 | The Good: Diverse revenue stream.
The Bad: U.S. economy is getting worse.
The Beautiful: Very high return on equity, good global reach. | P/E | 18 | | PSR | 1.5 | | ROE | 27% | | Debt/Eq. | 0.25 | | Div.Yield | 2.5% |
March 17, 2008 - United Parcel Service: (UPS-NYSE) relies on chocolate-colored trucks, but it's more than a plain-vanilla delivery business. The world's largest package-delivery company, UPS transports some 15.6 million packages and documents per business day throughout the US and to more than 200 countries and territories. Its delivery operations use a fleet of about 101,000 motor vehicles and more than 600 aircraft. The company offers services such as logistics and freight forwarding through UPS Supply Chain Solutions, and it expanded into trucking by buying Overnite (now UPS Ground Freight).
If you believe the U.S. economy will recover sooner rather than later, this is a stock that should be of interest. Even with the slowdown domestically, the company reported an 11% increase in profits compared to the previous quarter, putting total earnings per share for the year at $4.15, up from $3.86 in 2006. This year analysts are looking for $4.40 and $4.60 next year. Over the next 5 years, they predict earnings to grow by 10% a year, on average while revenues increase by 8% a year, on average. The increase in earnings came mostly from the company's international operations. Abroad, operating expenses were lower, new markets were opened and improvements in infrastructure all contributed to better operating margins. Also, revenue per piece internationally rose by 8.3% compared to the prior year. Domestically, the same measure improved by 1.6%. Late last year, the company announced a new shipping center would open in Shanghai, putting UPS in the robust Chinese market and add another hub to its Far Eastern presence, in Japan, which already has several hubs. In 2008, certain costs will increase, in particular labor and interest. Higher compensation and benefits were part of a recent contract negotiation. More debt was also put on the books. On the plus side, part of the labor agreement was to move the pension benefits from the Central States Fund to a group run by the union. Some numbers: Return on equity is a heart warming 27%. Market cap is $76 billion on 1.05 billion shares. Debt is 17% of capital. Current assets are about 1.2 times current liabilities. There was a dividend of $1.64 last year, and it should be higher this year. Total revenues were $49.692 billion last year, expected to be $52 billion this year and $54 billion next year. UPS deserves your attention if you have a time horizon beyond the next year or two. Improved infrastructure abroad as well as shifting the pension benefits should save the company money and allow for more expansion, especially in the Far East. But if the U.S. economy continues to falter, don't expect any near term upward movement in the stock. - Company Web site: www.ups.com - Ted Allrich |
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