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United Parcel Service Inc - Fundamental Investment Case


Publication Date: 25 Feb 2019 - By Robert Prather By Robert P.

Equity Fundamental Equity USA Transport


Qualitative Concerns:

  • Competitors such as USPS stealing share by offering lower prices
  • One of the major business generators for UPS aggressively developing its own in-house logistics service and luring shippers with deep discounts
  • Lots of startups competing directly with UPS in freight logistics have emerged recently and growing rapidly
  • UPS failed to keep up with the e-commerce growth, which has resulted in market share loss
  • E-commerce, which accounts for a big portion of UPS package volumes, is expected to decelerate

Fundamental Concerns:

  • 80% of the business experiencing volume decelerating and 40% experiencing revenue deceleration
  • Revenue per package has mostly failed to keep up with base rate hikes due to negative product mix shift
  • Growth of low yielding package volume pressuring operating margins
  • In our view, UPS hasn't been investing enough in the business which has helped it with higher FCF
  • As UPS ramps up CapEx, failure to generate enough FCF may force it to cut dividend
  • Analyst estimates at the high-end of guidance seem overly optimistic

Bottom Line: A leading logistics service company facing increasing competition, pricing and margin pressure and market share loss.

United Parcel Service Inc

Source: VR Fundamental

Pages: 85

Released: 25 Feb 2019

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The Author

Robert P.

Equity Fundamental, Accounting, IPO & Placements

Industry, Consumer, Telecom & Media, Technology