United Parcel Service ($UPS) is yet another company trading near a 52-week low. $UPS is on the front line of globalisation – and these are challenging times for the world economy. $UPS currently delivers more than 15 million packages a day to 6.1 million customers in more than 200 countries and territories around the world. How does the current share price look?
Valuecruncher produces a valuation of US$42.57 for $UPS. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 11.6% below the current share price of US$48.13.
- Revenue: Reuters aggregates 12 analysts covering $UPS and these analysts have mean estimates of 2008 and 2009 revenues of US$52.8 billion and US$56.4 billion respectively. For our analysis we have used US$52.0 billion in 2008, US$54.0 billion in 2009 and US$58.0 billion in 2010. We are worried about near term global economic conditions – which will impact companies like $UPS.
- Profitability: We have used an EBITDA margin of 15.0% flat to 2010.
- Capital Expenditure: We have assumed capital expenditures of US$2.85 billion in 2008 and then US$3.0 billion per annum moving forward.
- Discount Rate: 10.0%. We believe that a discount rate in the 9-10% range is reasonable. Dropping the discount rate to 9% increases the valuation to US$51.75 (7.5% above the current share price).
- Terminal Growth Rate: 3.5%.
Our analysis incorporates the cash and debt the $UPS balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?