UPS (UPS) Last Update 11/19/21
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Trefis Price
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TREFIS Analysis

Trefis Report
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Potential upside & downside to trefis price

UPS Company


  1. US Domestic Package (Next Day Air, Domestic Deferred Package, Domestic Ground Package) constitutes 58% of the Trefis price estimate for UPS's stock.
  2. International Package (International Domestic Package, International Export Package, International Cargo) constitutes 32% of the Trefis price estimate for UPS's stock.
  3. Supply Chain and Other Businesses constitute 11% of the Trefis price estimate for UPS's stock.


  1. Impact of Coronavirus On UPS' Stock

    • UPS stock lost more than 20% – dropping from $117 at the beginning of 2020 to below $92 in late March 2020 – then spiked 126% to around $208 now (through Nov 18, 2021). That means it is well above the pre-pandemic levels.

      Why? While the Covid-19 outbreak and associated lockdowns resulted in an uncertain outlook for the broader markets, the multi-billion-dollar Fed stimulus announced in late March helped the markets stage a strong recovery.

      Further, with increased vaccination rate for Covid-19, economies are opening up gradually, implying a pickup in demand for UPS' services. There has been an increase in e-commerce orders, boding well for UPS' ground shipments. In addition, the company posted solid results over the recent quarters, which aided its stock price.

  2. Q3 2021 Performance

    • UPS posted a 9% revenue growth to $23.2 billion in Q3 2021. This growth was driven by a 15% jump in international business and 7% growth in the U.S. domestic business. Looking at the bottom line, adjusted EPS surged 19% y-o-y to $2.71 in Q3 2021.
  3. Volatile fuel prices
    • Crude oil prices saw a significant drop in 2020, followed by a oil price war led by Saudi Arabia. US WTI declined from levels of over $50 toward the end of January to levels of less than $15 on April 28, 2020, reflecting a decline of 70%. Lower oil price translates into lower operating expenses for UPS. However, a decline in fuel surcharge related adjustments to its freight rates partially offsets the impact of lower operating expenses on the company's bottom line.

      However, fuel prices have seen a gradual increase over the last year or so, and EIA now estimates WTI Crude to average $69 a barrel in 2021, compared to $39 levels in 2020. While this will result in higher fuel expenses for UPS, it will also result in higher revenue from fuel surcharge.


Below are key drivers of UPS that present opportunities for upside or downside to the current Trefis price estimate.

US Domestic Ground Package

  • U.S. Domestic Ground Package EBITDA Margin: Historically, the US Domestic Ground Package EBITDA margins have largely stayed around the 17% - 18% mark, and it stood at 17.7% in 2020. We expect margins to remain under 19% for most of our review period. If EBITDA margins for Ground Package segment increase to 21%, there will be a more than 10% upside in our price estimate for UPS.

  • International Package

  • International Export EBITDA Margin: The international Export EBITDA margin remained close to 20% between 2011-2014, but increased thereafter to 30% in 2020. We forecast the figure to increase to 31% by the end of our review period. However, if EBITDA margins for the Export division of the International Package business decline to 20% over our review period, there will be a 10% downside in our price estimate for UPS.


United Parcel Service, Inc. ("UPS") is the world's largest package delivery company, a leader in the U.S. truckload industry, and a global leader in supply chain management. It delivers packages each business day from its 1990 locations worldwide to 10 million consignees in over 220 countries and territories.

Its primary business is the delivery of packages and documents worldwide. The UPS service portfolio also includes global supply chain services and truckload transportation which is primarily in the U.S. Other business units within this segment include Mail Boxes Etc. and UPS Capital.

UPS operates a ground fleet of approximately 123,000 vehicles which reaches all business and residential zip codes in the contiguous U.S. It also operates an air fleet of 650 aircraft and is one of the largest airlines in the world. The firm's primary air hub is in Louisville, Kentucky. Regional air hubs are located in Hartford, Connecticut; Ontario, California; Philadelphia, Pennsylvania; and Rockford, Illinois. Its largest international air hub is in Cologne, Germany, with other regional international hubs in Miami, Florida; Ontario, Canada; Hong Kong; Singapore; Taiwan; and China.


The US Domestic Package is the most valuable to the company because of the following reasons.

Highest number of shipments for US Domestic Package division

The US Domestic package division delivers a greater number of packages than the International Package division or UPS Freight. The total number of packages transported by the US Domestic division is almost 6 times the number transported by the International Package division.

The primary reason behind the high volumes of the U.S. Domestic Package is the booming e-commerce industry. With the North American e-commerce market forecast to grow more than 10-15% per through 2019-2022, we believe UPS's US Domestic Package segment will continue to grow in the coming years. (Link)


Global Economic Rebound

Demand for shipping volume is closely correlated with the overall consumer demand and GDP growth of an economy. After the coronavirus pandemic winds down, the global economy is expected to see a rebound, and this will bode well for UPS' shipments.

Growing U.S. e-commerce industry

The growing e-commerce industry has been driving volumes at UPS's U.S. Domestic Package segment. Not only is online shopping more convenient, but it has also become more accessible due to the increase in the number of smartphones and tablets available, supported with higher internet penetration. Many brick-and-mortar retailers have rolled out online shopping portals to cater to the growing online retail shopping customer base. Deals and discounts on online shopping also encourage customers to purchase via websites rather than traditional stores. UPS’ package volume is directly impacted by e-commerce sales since many online retailers, such as Amazon (NASDAQ:AMZN), employ UPS’ services in order to offer their customers timely and economical delivery of products.

Dimension based pricing

In the past (prior to 2014), UPS's margins declined due to the growing number of light-weight yet bulky packages. Since these packages are priced on the basis of their weight, they generate lower revenues due to lesser packages carried per vehicle or aircraft. In order to realize better prices from such packages, UPS has decided to follow a dimension based pricing strategy which will result in a 30-50% increase in pricing of the light-weight yet bulky packages. This strategy, has helped improve margins. The company announced a rate increase of 4.9% on Ground and Air services effective from June 2021.

Demand for cheaper shipping options and higher competition from sea-borne shipping

There has been a clear trend of customers shifting from premium services to slower or deferred products while seeking lower shipping expenses. The air freight carriers are accordingly facing higher market share competition with seaborne shipping that offers lower rates.

Global Sourcing

Increased international trade in finished goods translates into more packages shipped over longer distances. But the potential benefits of international trade for UPS are not limited to growth in the parcel carrier market. Many developed world businesses already purchase materials they use from abroad, and this practice, which is known as global sourcing, is on the rise.

For businesses, the downside of global sourcing is complex supply chains that present previously unknown risks. For businesses facing import/export regulations and international transportation logistics for the first time, the appeal of outsourcing supply chain management is obvious. UPS Supply Chain Solutions hopes to capitalize on a projected increase in the market for third-party supply chain managers.