Tuesday, June 24, 2008

UPS getting cheaper

Earlier this month I wrote about why I really like United Parcel Service (UPS), but the stock never seems to get cheap enough to satisfy my requirements for a purchase. Well, all that seems to be changing as UPS is guiding down for earnings per share going forward. Specifically UPS is estimating earning $0.85/share down their prior view of about $1.00 per share. Package volume is down and fuel is up. The shares were hammered 6% today.

I will have to run my valuation model on UPS to see where I believe a good entry point might be. Just scratching the surface, here are some interesting facts:
  • P/E ratio of 15.5x trailing earnings is a 5 year low, and well below the average P/E of each of the last 10 years.
  • 2003 is the last year the stock last traded down to these levels ($62.26)
  • 2.9% yield is at least a 10 year high.

UPS has been a solid grower of dividends over the past several years; they also have a phenomenal brand and moat. I see UPS as a business for the ages that will still be around, and more importantly still be essential 50 years from now. As mentioned in my previous post, I really like their recent move into logistics and specialized, convenient, services for businesses of all shapes and sizes. It is a little known fact that UPS actually performs tasks such as fixing laptops for Toshiba, and picking and shipping running shoes for Nike. These service oriented tasks that surround the shipping experience are all added value, and will only increase in popularity as transportation costs rise, workforce ages, and the global economy becomes increasingly intertwined.

I may get my chance yet to open up a position in this global package delivery and logistics leader. I'm staying tuned. Now only if I had some money laying around....

9 comments:

uno1taxpayer said...

Watch BNN every morning from 7:00 to 8:00am while I burn 900 calories putting 14 miles on the stationary bike.

UPS was a topic for discussion and the talking head made mention UPS was suffering from lack of high end parcels to ship. Such would be the case until the US economy picked up.

MG (moneygardener) said...

wow, 900 calories is an impressive amount to burn every morning. I figure I burn around 400 every day running, stationary bike, and/or elliptical.

I wonder what is meant by 'high end' parcels...?

Thicken My Wallet said...

What is UPS' market share compared to FedEx?

MG (moneygardener) said...

tmw, good question, not sure, It looks like their mkt. share of the U.S. in 2005 was around 47%. I would be interested to know their global mkt. share in package delivery if anyone can dig it up...

uno1taxpayer said...

Used to walk 7 miles a day braving the elements and bears for a measly 500 calories and that took me 2 hours. Now I can do it all indoors and be entertained.

Sorry MG, I should have used the word “premium”.

Supposedly the company said Monday it expected second-quarter earnings per share of 83 cents to 88 cents, compared to previous estimates of 97 cents to $1.04 due to high fuel prices and low demand for premium delivery services domestically and abroad.

I googled to find out more and came across a more in depth discussion at http://www.ajc.com/services/content/business/stories/2008/06/24/ups_earnings.html?cxtype=rss&cxsvc=7&cxcat=6

DIB (Dividend Investing Blog) said...

The rising costs of transportation have to concern you going forward. I suppose those costs will eventually get passed along to the customers, but it could be a war of attrition between UPS, FedEx, and DHL.

Sami said...

UPS is more consumer driven company and do not have a large share of transportation of the business to business goods. also they are much smaller internationally than say DHL, they are more of a US play.

there is courier and there is carrier and they are two worlds apart, UPS is more of courier but getting into the carrier business with recent acquisitions over the past few years.

There is two things in commercial trucking and transport world: LTL, less than truck load and TL, full truck load, and UPS is not much of a factor in either. Actually UPS holds 5% of the LTL market compared to larger trucking companies like YRC Worldwide of 25% market share, 2006 figures.

Dividends4Life said...

Great read! As the prices drop, there are values to be found.

Best Wishes,
D4L

Middle Class Millionaire said...

MG,

Couldn't agree more. UPS and FDX are both also on my watchlist and ones that I plan to tuck away in my portfolio forever. People will always want stuff and e-commerce will only get bigger...just wait until india, china etc... start using e-bay and online shopping like we do here in North America (we are just starting to get into it).