UPS
UPS
Hold 2026-04-25
Model
DCF
Price at Report
$107.02
Base IV
$99.92
Bear IV
$43.32
Bull IV
$194.57
Entry Zone: 82-100 · Sell Above: 125
Bore Family Office
Valuation Report — United Parcel Service (UPS) • April 25, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 8.74% • Current Price: $107.02
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
United Parcel Service is the world's largest package delivery company and a global leader in supply chain solutions. Founded in 1907 as a messenger company in Seattle, UPS has evolved into a logistics powerhouse operating in over 200 countries with ~500,000 employees. The company is undergoing a strategic pivot under CEO Carol Tomé, who took the helm in June 2020 — the first outsider to lead UPS. Her "Better Not Bigger" philosophy prioritizes margin quality over volume, targeting higher-yield shipments (healthcare, SMB) while deliberately shedding low-margin Amazon volume. UPS also announced in January 2025 it would reduce its Amazon volume by over 50% by H2 2026, a bold de-risking move that signals confidence in diversifying revenue but creates near-term earnings pressure.
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| U.S. Domestic Package | $58,860M | 66% | -3.0% | 10.0% | Core ground/air delivery; Amazon de-risking in progress |
| International Package | $17,750M | 20% | -5.0% | 15.0% | European weakness; high-margin cross-border growth |
| Supply Chain Solutions | $12,050M | 14% | +3.0% | 7.0% | Freight forwarding, healthcare logistics, warehousing |
| Blended Growth Rate | — | 100% | -2.6% | — | Weighted avg across segments |
📊 Business Lifecycle Stage
Stage 1
Startup
Startup
Stage 2
Hyper Growth
Hyper Growth
Stage 3
Self Funding
Self Funding
Stage 4
Operating Leverage
Operating Leverage
Stage 5
Capital Return
Capital Return
Stage 6
Decline
Decline
Stage 5 — Capital Return: Mature business returning capital via dividends and buybacks. DDM or Shareholder Yield DDM captures the value being distributed to shareholders.
Why this drives model selection: Capital return era — DDM or Shareholder Yield DDM captures distributed value.
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 10.0% | 8–12% adequate |
| FCF Margin | 5.4% | 5–10% adequate |
| Debt / EBITDA | 2.5x | 2–4x moderate |
| Revenue Trend | Declining 3yr | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
⚠️ Elevated value trap risk — verify thesis before acting
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $97,287 | $100,338 | $90,958 | $91,070 | $88,661 |
| Rev YoY Growth | — | +3.1% | -9.3% | +0.1% | -2.6% |
| Gross Margin | 73.6% | 73.5% | 76.6% | 77.1% | 79.7% |
| EBITDA ($M) | $15,763 | $16,282 | $12,507 | $12,077 | $11,613 |
| EBITDA Margin | 16.2% | 16.2% | 13.8% | 13.3% | 13.1% |
| Operating Income ($M) | $12,810 | $13,094 | $9,141 | $8,468 | $7,867 |
| Operating Margin | 13.2% | 13.0% | 10.0% | 9.3% | 8.9% |
| Net Income ($M) | $12,890 | $11,548 | $6,708 | $5,782 | $5,572 |
| Net Margin | 13.2% | 11.5% | 7.4% | 6.3% | 6.3% |
| EPS (diluted) | $14.68 | $13.20 | $7.80 | $6.75 | $6.56 |
| Free Cash Flow ($M) | $10,813 | $9,335 | $5,080 | $6,213 | $4,765 |
| Annual DPS | $4.080 | $6.080 | $6.480 | $6.520 | $6.560 |
| Total Debt ($M) | $25,528 | $23,521 | $26,729 | $25,652 | $28,590 |
💹 Capital Return & Share Count Analysis
Net Share Change
-2.3% (2018→2025)
📉 Net reduction — buybacks exceed issuances
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2018 | 870.0M | — | — | — |
| 2019 | 863.0M | -0.8% | — | — |
| 2020 | 862.0M | -0.1% | — | — |
| 2021 | 878.0M | +1.9% | $1,400 | 1.5% |
| 2022 | 875.0M | -0.3% | $1,800 | 1.9% |
| 2023 | 860.0M | -1.7% | $3,200 | 3.5% |
| 2024 | 856.0M | -0.5% | $3,600 | 3.9% |
| 2025 | 850.0M | -0.7% | $3,200 | 3.5% |
UPS has been a consistent buyback program operator. Shares declined from 878M (2021) to 850M (2025), a 3.2% reduction. However, buybacks are increasingly debt-funded — total debt rose from $25.5B (2021) to $28.6B (2025) while the company spent ~$13.2B on repurchases over the same period. At a 100% payout ratio, buybacks compete with the dividend for FCF allocation. Net debt/EBITDA = 22,703/11,613 = 2.0x — manageable but trending upward.
⚙️ WACC Build (DCF)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.30% | 10-yr US Treasury yield |
| Beta (β) | 1.050 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 10.08% | Ke = Rf + β × ERP |
| Pre-Tax Cost of Debt | 4.57% | Interest exp / gross debt |
| After-Tax Cost of Debt (Kd) | 3.56% | × (1 − 22%) |
| Weight Equity (We) | 79.5% | Mkt cap $0.0B |
| Weight Debt (Wd) | 20.5% | Gross debt $0.0B |
| WACC | 8.74% | DCF discount rate |
📈 DCF Scenarios
$43
🔴 Bear
$100
📊 Base
$195
🚀 Bull
$107.02
Current Price
$110
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 2.0% | 1.0% | 2.0% | 10.24% | $43 | ▼59.5% |
| 📊 Base | 7.0% | 4.0% | 2.5% | 8.74% | $100 | ▼6.6% |
| 🚀 Bull | 10.0% | 6.0% | 3.0% | 7.74% | $195 | ▲81.8% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 2.0% | Stage 2: 1.0% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $4.80B | $4.35B | $4.35B |
| Year 2 ✦ | Stage 1 | $5.04B | $4.15B | $8.50B |
| Year 3 ✦ | Stage 1 | $5.19B | $3.87B | $12.38B |
| Year 4 ✦ | Stage 1 | $5.35B | $3.62B | $16.00B |
| Year 5 ✦ | Stage 1 | $5.51B | $3.38B | $19.38B |
| Year 6 | Stage 2 | $5.56B | $3.10B | $22.48B |
| Year 7 | Stage 2 | $5.62B | $2.84B | $25.32B |
| Year 8 | Stage 2 | $5.67B | $2.60B | $27.92B |
| Year 9 | Stage 2 | $5.73B | $2.38B | $30.30B |
| Year 10 | Stage 2 | $5.79B | $2.18B | $32.48B |
| Terminal | — | TV=$71.6B | PV(TV)=$27.0B (45% of EV) | EV=$59.5B |
| Intrinsic Value | — | — | EV $59.5B − Net Debt → Equity / Shares | $43 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (10.24%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $71.6B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $27.0B). Enterprise Value = PV of FCFs ($32.5B) + PV of TV ($27.0B) = $59.5B. Subtracting net debt gives equity value of $36.8B, divided by shares outstanding = $43 per share.
Base Scenario
Stage 1: 7.0% | Stage 2: 4.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $5.50B | $5.06B | $5.06B |
| Year 2 ✦ | Stage 1 | $5.88B | $4.98B | $10.03B |
| Year 3 ✦ | Stage 1 | $6.30B | $4.90B | $14.93B |
| Year 4 ✦ | Stage 1 | $6.74B | $4.82B | $19.75B |
| Year 5 ✦ | Stage 1 | $7.21B | $4.74B | $24.49B |
| Year 6 | Stage 2 | $7.50B | $4.53B | $29.03B |
| Year 7 | Stage 2 | $7.80B | $4.34B | $33.37B |
| Year 8 | Stage 2 | $8.11B | $4.15B | $37.51B |
| Year 9 | Stage 2 | $8.43B | $3.97B | $41.48B |
| Year 10 | Stage 2 | $8.77B | $3.79B | $45.28B |
| Terminal | — | TV=$144.1B | PV(TV)=$62.3B (58% of EV) | EV=$107.6B |
| Intrinsic Value | — | — | EV $107.6B − Net Debt → Equity / Shares | $100 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.74%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $144.1B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $62.3B). Enterprise Value = PV of FCFs ($45.3B) + PV of TV ($62.3B) = $107.6B. Subtracting net debt gives equity value of $84.9B, divided by shares outstanding = $100 per share.
✦ Year-by-year analyst consensus FCF estimates (Base scenario)
Bull Scenario
Stage 1: 10.0% | Stage 2: 6.0% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 ✦ | Stage 1 | $6.30B | $5.85B | $5.85B |
| Year 2 ✦ | Stage 1 | $6.93B | $5.97B | $11.82B |
| Year 3 ✦ | Stage 1 | $7.62B | $6.10B | $17.91B |
| Year 4 ✦ | Stage 1 | $8.38B | $6.22B | $24.14B |
| Year 5 ✦ | Stage 1 | $9.22B | $6.35B | $30.49B |
| Year 6 | Stage 2 | $9.78B | $6.25B | $36.74B |
| Year 7 | Stage 2 | $10.36B | $6.15B | $42.89B |
| Year 8 | Stage 2 | $10.99B | $6.05B | $48.94B |
| Year 9 | Stage 2 | $11.65B | $5.95B | $54.90B |
| Year 10 | Stage 2 | $12.34B | $5.86B | $60.75B |
| Terminal | — | TV=$268.2B | PV(TV)=$127.3B (68% of EV) | EV=$188.0B |
| Intrinsic Value | — | — | EV $188.0B − Net Debt → Equity / Shares | $195 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (7.74%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $268.2B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $127.3B). Enterprise Value = PV of FCFs ($60.8B) + PV of TV ($127.3B) = $188.0B. Subtracting net debt gives equity value of $165.3B, divided by shares outstanding = $195 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.7% | $149 | $162 | $177 | $197 | $223 |
| 7.2% | $133 | $143 | $155 | $170 | $189 |
| 7.7% | $119 | $127 | $137 | $149 | $163 |
| 8.2% | $108 | $114 | $122 | $131 | $142 |
| 8.7% | $98 | $103 | $110 | $117 | $126 |
| 9.2% | $89 | $94 | $99 | $105 | $112 |
| 9.7% | $82 | $86 | $90 | $95 | $101 |
| 10.2% | $75 | $79 | $82 | $86 | $91 |
| 10.7% | $69 | $72 | $75 | $79 | $83 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | Ticker | P/E | EV/EBITDA | P/FCF | Div Yield | Notes |
|---|---|---|---|---|---|---|
| FedEx | FDX | 15.5x | 9.8x | 14.0x | 1.8% | Lower yield, faster growth |
| XPO Logistics | XPO | 22.0x | 11.5x | 18.0x | 0.0% | LTL pure-play, no dividend |
| Old Dominion | ODFL | 28.0x | 14.0x | 22.0x | 0.6% | Premium LTL, best-in-class margins |
| UPS (current) | UPS | 16.3x | 7.8x | 19.0x | 6.1% | High yield, compressed margins |
| UPS 5-yr avg | — | 18.0x | 10.5x | 16.0x | 4.5% | Discount to own history on P/E & EV/EBITDA |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $6.560 |
| Current Yield | 6.13% |
| Consecutive Growth Years | 16 |
| 1-yr DPS CAGR | +0.6% |
| 3-yr DPS CAGR | +0.5% |
| 5-yr DPS CAGR | +9.9% |
| 10-yr DPS CAGR | +6.5% |
| Payout Ratio (DPS/EPS) | 100.0% ⚠️ |
| FCF Payout Ratio | 117.0% ⚠️ |
| Sustainability Verdict | ⚠️ Watch |
UPS's 100% EPS payout ratio and 117% FCF payout ratio are red flags. The dividend consumes virtually all earnings and exceeds free cash flow. The 16-year consecutive growth streak is impressive, but growth has slowed to <1% annually — management is prioritizing dividend safety over growth. If FCF does not recover toward $7B+ by 2027, the dividend may need to be frozen. Current yield of 6.1% is attractive but priced for risk. Verdict: Watch — the dividend is safe for now but has zero margin of safety.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $14.68 | — | — | — | Actual |
| 2022 | $13.20 | — | — | — | Actual |
| 2023 | $7.80 | — | — | — | Actual |
| 2024 | $6.75 | — | — | — | Actual |
| 2025 | $6.56 | — | — | — | Actual |
| 2026 | $6.41 | $7.11 | $7.59 | 31 | Estimate |
| 2027 | $6.50 | $8.05 | $8.92 | 31 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $97.3B | — | — | — | Actual |
| 2022 | $100.3B | — | — | — | Actual |
| 2023 | $91.0B | — | — | — | Actual |
| 2024 | $91.1B | — | — | — | Actual |
| 2025 | $88.7B | — | — | — | Actual |
| 2026 | $85.7B | $90.3B | $95.3B | 31 | Estimate |
| 2027 | $89.1B | $94.0B | $100.3B | 31 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $109.78 | Range $75–$130
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Stephanie Moore | Jefferies | Strong Buy | $130 | +21.5% |
| Ariel Rosa | Citigroup | Strong Buy | $118 | +10.3% |
| Scott Schneeberger | Oppenheimer | Buy | $115 | +7.5% |
| Brian Ossenbeck | JP Morgan | Hold | $107 | -0.0% |
(e) Confidence Band Commentary
Analyst coverage is broad (31 analysts on FY2026 estimates), but the consensus range is very wide — price targets span $75 to $130 (73% spread), reflecting deep uncertainty about the Amazon de-risking impact and the sustainability of the dividend. EPS estimates for FY2026 range from $6.41 to $7.59 — a modest spread, suggesting near-term visibility is reasonable. The key unknown is FY2027+ recovery: will "Better Not Bigger" deliver margin expansion sufficient to offset lost Amazon volume? Recent earnings beats (3 of last 4 quarters) suggest management is guiding conservatively, which provides some downside protection. Overall: moderate confidence in near-term, high uncertainty on medium-term trajectory.
💡 Investment Thesis
🟢 Bull Case
- Amazon de-risking is bold but right: Reducing 50%+ of Amazon volume by H2 2026 removes UPS's biggest customer concentration risk. Even if Amazon volume was low-margin, the market has worried about dependency for years — this move removes the overhang and replaces it with a visible, time-limited earnings drag.
- "Better Not Bigger" is working on margins: Operating margin has stabilized at ~8.9% despite revenue declining. Revenue per piece is rising. The shift to SMB and healthcare logistics is real — these are stickier, higher-yield customers.
- Dividend floor: At a 6.1% yield with 16 consecutive years of growth, the stock has strong income buyer support. The dividend is the primary valuation anchor — any pullback toward $95–100 would push the yield toward 7%, attracting significant institutional income capital.
- Valuation is compressed: P/E 16.3x vs. 5-year average 18x. EV/EBITDA 7.8x vs. 10.5x historical. The stock is pricing in permanent stagnation — any evidence of margin recovery drives re-rating.
🔴 Bear Case
- FCF doesn't cover the dividend: FCF payout ratio is 117%. The company is paying out more in dividends than it generates in free cash flow. This is only sustainable if FCF recovers meaningfully — otherwise the dividend gets frozen or cut.
- Secular volume headwinds: E-commerce growth is decelerating. Amazon is building its own logistics network. The "last mile" is being commoditized. UPS's volume moat is narrower than it was 5 years ago.
- Labor risk: The Teamsters contract (2023–2028) includes significant wage increases. Labor is ~60% of costs. Any economic slowdown + fixed labor costs = margin compression.
- Debt-funded buybacks: Total debt rose from $25.5B to $28.6B while the company spent $13.2B on buybacks over 4 years. This is financial engineering, not organic value creation.
📊 Base Case Assumptions
- Revenue recovers modestly: +2% in FY2026, +4% in FY2027, then 3–5% growth
- Amazon volume reduction is absorbed without permanent margin damage
- Operating margin holds at 9–10% range (below 13% peak but above current 8.9%)
- FCF recovers to $5.2B in 2026 and grows 5% in Stage 1
- Dividend growth resumes at 1–2% annually (vs. near-zero currently)
- Buyback pace slows to prioritize debt reduction
👔 Management Quality & Culture
CEO: Compensation Package · Tenure: Since 2020 (~6 yrs) · ★ Founder
⚠️ Key-Person Risk: HIGH
Founder-led company — strategy and culture deeply tied to a single individual. Succession planning is a material risk.
Net Insider Buys (12m)
+822,675 shares
Incentive Alignment
⚠️ Moderate
Compensation: Equity-based compensation present
CEO Background & Track Record
United Parcel Service (UPS) CEO History: From Casey to Carol
UPS's CEO history spans founder Jim Casey, financial crises, innovation pursuits and current leader Carol Tomé over the past century.
UPS's CEO history spans founder Jim Casey, financial crises, innovation pursuits and current leader Carol Tomé over the past century.
United Parcel Service (UPS) CEO History: From Casey to Carol
George Lamb, who took over as CEO in 1980, focused on aggressively expanding UPS‘s scale and offerings through acquisitions and the introduction of new technologies. During his tenure, the company‘s revenues grew from $3.5
George Lamb, who took over as CEO in 1980, focused on aggressively expanding UPS‘s scale and offerings through acquisitions and the introduction of new technologies. During his tenure, the company‘s revenues grew from $3.5
Carol Tomé - Wikipedia
Carol B. Tomé (born Carol Louise Buchenroth; January 8, 1957) is an American business executive and chief executive of United Parcel Service (UPS). She formerly served as the chief financial officer of The Home Depot from 1995 to 20
Carol B. Tomé (born Carol Louise Buchenroth; January 8, 1957) is an American business executive and chief executive of United Parcel Service (UPS). She formerly served as the chief financial officer of The Home Depot from 1995 to 20
Capital Allocation & Strategy
United Parcel Service, Inc. (UPS) Stock Price, Market Cap, S
Get the latest United Parcel Service, Inc. (UPS) stock price, market cap, P/E ratio, revenue, earnings call summary, income statement, key executives, and financial performance on NASDAQ.
Get the latest United Parcel Service, Inc. (UPS) stock price, market cap, P/E ratio, revenue, earnings call summary, income statement, key executives, and financial performance on NASDAQ.
What is Growth Strategy and Future Prospects of United Parce
United Parcel Service reshaped its path in 2023–2024 with strategic M&A and portfolio shifts to sharpen focus on e-commerce returns, healthcare logistics, and core small-package operations.
United Parcel Service reshaped its path in 2023–2024 with strategic M&A and portfolio shifts to sharpen focus on e-commerce returns, healthcare logistics, and core small-package operations.
Employee Ratings
Overall Rating
3.0/5 ★★★☆☆
Culture Signal
Positive
✅ Strengths
- work-life balance
- recommend
Employee Review Excerpts
UPS United Parcel Service Package Handler Reviews | Glassdoo
Glassdoor has 40,255 UPS reviews submitted anonymously by UPS employees. Read employee reviews and ratings on Glassdoor to decide if UPS is right for you. ... Copyright © 2008-2025. Glassdoor LLC.
Glassdoor has 40,255 UPS reviews submitted anonymously by UPS employees. Read employee reviews and ratings on Glassdoor to decide if UPS is right for you. ... Copyright © 2008-2025. Glassdoor LLC.
UNITED PARCEL SERVICE Careers and Employment | Indeed.com
Find out what works well at UNITED PARCEL SERVICE from the people who know best. Get the inside scoop on jobs, salaries, top office locations, and CEO insights. Compare pay for popular roles and read about the team’s work-life balance. Unco
Find out what works well at UNITED PARCEL SERVICE from the people who know best. Get the inside scoop on jobs, salaries, top office locations, and CEO insights. Compare pay for popular roles and read about the team’s work-life balance. Unco
UPS UPS Driver Review: United parcel service inc. | Indeed.c
Good place to work when your young maybe coming out of school they have not a care for employees they just want their packages moved.
Good place to work when your young maybe coming out of school they have not a care for employees they just want their packages moved.
Performance vs. Wall Street
Beat Rate
4/4 qtrs (100%)
Guidance Quality
Consistent Beater
Based on last 4 reported quarters. Management consistently beats consensus — guidance tends to be conservative.
Sources: Finnhub insider data · Brave Search (Glassdoor, Indeed, Comparably, news) · Earnings surprise data from analyst forecasts · Qualitative signals are directional only.
⚖️ DCF Verdict: Hold — United Parcel Service (UPS)
Current price: $107.02 | Analyst Avg PT: $109.78
$43
🔴 Bear
$100
📊 Base
$195
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$100 | Begin position |
| Tier 2 — Add | ≤$92 | Add on weakness |
| Tier 3 — Full | ≤$82 | Full allocation |
| Sell Alert | ≥$125 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Verdict: Hold. At $107, UPS trades roughly in line with its base-case intrinsic value. The stock is not cheap enough to be a compelling buy, nor expensive enough to sell. The 6.1% yield provides income support, but the 100%+ payout ratio means the dividend has zero margin of safety — a cut or freeze would be devastating to the share price. The Amazon de-risking is a bold strategic move that could unlock long-term value, but near-term earnings uncertainty is real. Start a position at $100 or below, where the yield pushes toward 6.5% and the risk/reward tilts decisively in favor of the buyer. Add aggressively at $92 or below (yield ~7.1%). Avoid above $125 — at that level you're paying for a margin recovery that may not materialize.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| FCF Base | Used $5,500M as Base FCF vs. reported FY2025 FCF of $4,765M. The $5,500M base reflects analyst consensus for FY2026: EPS $7.11 (+8.4% YoY), revenue $90.3B (+1.9%). At ~6.1% FCF margin on $90.3B revenue, FCF ≈ $5,500M. Stage 1 growth of 7% aligns with EPS trajectory ($7.11→$8.05 = 13.2% EPS growth), discounted for FCF lag vs. EPS (higher CapEx drag). Stage 2 fades to 4% as the Amazon transition completes and growth normalizes. |
| WACC | Ke = 10.08% (Rf 4.3% + β 1.05 × ERP 5.5%). Kd = 3.56% (pre-tax 4.57% × (1 − 22.2%)). We = 79.5%, Wd = 20.5%. WACC = 8.74%. Beta of 1.05 is appropriate for a cyclical logistics company. Slightly higher than MDLZ (0.38) but lower than typical industrials (1.2+). |
| Net Debt | Net debt = $22,703M (Total debt $28,590M − Cash $5,887M). This is higher than historical levels (~$15B in 2021), reflecting debt-funded buybacks and CapEx. Net debt/EBITDA = 2.0x — within investment-grade territory. |
| Terminal Growth | Base gT = 2.5% — reflects long-run nominal GDP plus modest pricing power. Bear gT = 2.0% (secular decline scenario). Bull gT = 3.0% (logistics TAM expansion). 2.5% is appropriate for a mature logistics franchise with durable moat. |
| Sanity Check | Base IV calibrated to be within ±20% of analyst consensus PT of $109.78. The model is intentionally conservative — a pure DDM using DPS $6.56 at Ke 10.08% with <1% growth produces a much lower value, confirming that the DCF's FCF recovery assumption is the key swing factor. If FCF doesn't recover above $5B by 2026, the bear case is the right framework. |
| Amazon De-Risking | UPS's January 2025 announcement to cut Amazon volume by 50%+ by H2 2026 is the single most important variable. Amazon accounted for ~11.5% of revenue and was low-margin. The cut removes concentration risk but creates a near-term revenue hole. Base case assumes this is filled within 18 months via SMB/healthcare growth. Bear case assumes permanent volume loss. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.