UPS (NYSE:UPS) is the largest package delivery company globally as well as a leader in the U.S. trucking industry for small packages and global supply chain management. It operates a ground fleet of approximately 99,800 vehicles, which reaches all business and residential zip codes in the contiguous U.S. It also operate an air fleet of 527 aircraft and is one of the largest airlines in the world. Its main competitors are FedEx Corp. (NYSE:FDX) and national postal services such as the United States Postal Service (USPS).
We break UPS to four main business units that we detail below and set a $80 price estimate for UPS, which is almost 10% ahead of the market price.
- UPS Q1 Earnings Review: Revenue, Operating Profits Increase, EPS Beats Expectations
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- By What Percentage Did UPS’s Revenue & EBITDA Grow In The Last 5 Years?
- What’s UPS’s Fundamental Value Based on Expected 2016 Results?
- What is UPS’ Current Revenue & EBITDA Breakdown?
- Where is UPS’s 2016 Revenue Growth Expected To Come From?
Launch of Coverage on UPS – $80 Price Estimate
Given an increase in global trade and recovery in global economies, UPS will benefit from increased shipping needs. The stock also benefits from lower fuel prices, which could add an additional catalyst if prices decline.
We’ve broken down our analysis of UPS into 4 main business segments. The largest value drivers for the company are U.S. Domestic Package that contributes around 52% to our valuation and almost 39% for International Package.
Expansion of Worldport Air Hub
In 2010, UPS completed the second phase of a multi-year expansion of fully automated Worldport air hub in Louisville, KY, its largest air hub. Worldport sort capacity has been expanded to 416,000 packages per hour representing a 37% increase. This will help UPS increase its total domestic ground package shipments and international export package shipments. This expansion will also enable more cost effective package processing and enable use of larger, more fuel efficient aircrafts that will help UPS boost its domestic package margin and international package margin.