DCF Studio

    UPS · NYQ · Industrials

    United Parcel Service, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 58.33

    Market price

    USD 99.06

    Implied upside

    -41.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 4.7% of revenue against depreciation of 3.8%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD 58.33-41.1%
    Exit multiple
    USD 68.81-30.5%
    Market price
    USD 99.06

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn5bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 85.1bnUSD 81.6bnUSD 78.3bnUSD 75.2bnUSD 72.1bn-4.0%
    EBITUSD 8.8bnUSD 8.4bnUSD 8.1bnUSD 7.8bnUSD 7.4bn-4.0%
    NOPATUSD 6.9bnUSD 6.7bnUSD 6.4bnUSD 6.1bnUSD 5.9bn-4.0%
    Add depreciation & amortisationUSD 3.2bnUSD 3.1bnUSD 3.0bnUSD 2.8bnUSD 2.7bn-4.0%
    Less capital expenditureUSD -4.0bnUSD -3.9bnUSD -3.7bnUSD -3.5bnUSD -3.4bn-4.0%
    Less increase in working capitalUSD -1.5bnUSD -1.4bnUSD -1.4bnUSD -1.3bnUSD -1.3bn-4.0%
    Free cashflow to firmUSD 4.6bnUSD 4.5bnUSD 4.3bnUSD 4.1bnUSD 3.9bn-4.0%
    Discount factor0.95810.87940.80720.74100.6801-
    Present valueUSD 4.4bnUSD 3.9bnUSD 3.5bnUSD 3.0bnUSD 2.7bn-11.9%
    Present Value Of The ForecastUSD 17.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.025Reported 1.038, pulled toward 1.0 (Blume)
    Cost of equity10.64%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 84.3bn74.7% of capital
    Total debtUSD 28.6bn25.3% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.94%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 58.33

    76% of EV

    Forecast FCFF, final year
    USD 3.9bn
    Capex at depreciation, working capital in reinvestment
    USD 5.9bn
    Less reinvestment at g/ROIC (13.9% of NOPAT)
    USD -820.0m
    Capitalised
    USD 5.1bn
    ROIC (reported)
    17.9%
    Terminal value, undiscounted
    USD 80.5bn
    Terminal value, discounted
    USD 54.7bn
    Enterprise value
    USD 72.3bn
    Less net debt
    USD 22.7bn
    Equity value
    USD 49.6bn

    Exit at 9.2x EBITDA

    Value per shareUSD 68.81

    78% of EV

    Terminal value, undiscounted
    USD 93.6bn
    Terminal value, discounted
    USD 63.7bn
    Enterprise value
    USD 81.2bn
    Less net debt
    USD 22.7bn
    Equity value
    USD 58.5bn

    Spread between methods: 16%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.94%82.1888.5596.32106.03118.51
    7.94%65.1469.1373.8279.4486.29
    8.94%52.7155.3358.3361.8165.91
    9.94%43.2445.0147.0149.2751.87
    10.94%35.8037.0338.3939.9041.61

    Outlined: this model. Green text: above today's price of 99.06. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-4.0%2.3%+6.4pp
    EBIT margin10.3%14.7%+4.4pp
    Discount rate8.9%6.8%-2.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.