Since Going Public in 1999, This Company is Up Only 5.84%

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to focus on a leader in the package delivery industry: United Parcel Service (NYSE: UPS).

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Strengths:

  • Solid Revenue Growth: In 2006, UPS reported revenue of $47.5 billion; in 2011, the company announced revenue of $53.1 billion, representing year over year annual growth of 2.25%, a solid trend that is widely anticipated to be sustained into the future, with projections placing 2016 revenue at $68.3 billion. This growth is a result of a combination of an increase in the volume of shipments and an increase in the revenue derived from each of these packages

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  • Dividend: UPS currently pays out quarterly dividends of $0.57, which puts the dividend as yielding 3.07% annually
  • Established & Diversified Nature: UPS is valued at $70.80 billion, employs 398,000 people, and operates in 220 countries around the world; with this established and diversified nature comes a certain level of predictability and certainty
  • Cash & Equivalents: UPS possesses approximately $8.43 billion in cash and cash equivalents on their balance sheets, a major advantage to the business

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  • Brand Value & Customer Loyalty: UPS’s brand value was estimated to be $37.1 billion, the 16th most valuable brand in the world, and this brand name drives the majority of the traffic to the company, while brand loyalty keeps customers coming back

Weaknesses:

  • Debt: At the moment, UPS possesses about $11.15 billion of debt on their balance sheets, a major downside to the business; much of this debt has been accumulated through expansion

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  • Tight Margins: At the moment, UPS possesses a net profit margin of 7.15%, which is incredibly tight and leaves little room for unexpected expenditures
  • Pricy Valuation: Currently, the company carries a price to earnings ratio of 21.43, a price to book ratio of 10.22, and a price to sales ratio of 1.34, all of which point to a company that is slightly overvalued

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  • Lack of Institutional Confidence: Only 52% of shares outstanding are held by institutional investors, displaying an apparent lack of confidence some of the largest investors in the world have in the company and its future

Opportunities:

  • Growth in Volume of Shipments: Over the past years the total number of ground packages shipped has increased, and further growth in the largest segment of UPS’ business will fuel growth into the future

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  • Chinese Market: UPS is still in the early stages of expanding into the Chinese market, and further penetration into this rapidly expanding market could fuel growth into the future
  • Shipments From Online Shopping:  Year over year, holiday online shopping grew 16% from 2011 to 2012; a recent report by Forrester analyst Sucharita Mulpuru estimated United States shoppers will spend $327 billion online in 2016, up 45% from $226 billion this year, and all these packages will have to be shipped, which should benefit UPS
  • Increasing Capability: In 2010, the company finished the expansion of a fully automated Worldport air hub in Kentucky, giving the company’s largest air hub a capability of 416,000 packages per hour; and further capability increases will help UPS expand

Threats:

  • Rising Fuel Prices: Every day, UPS utilizes millions of gallons of jet fuel, diesel, and gas to run its business, and if fuel prices were to rise, the company’s profits would be cut
  • Competition: As in any industry worth operating in, the shipping industry is extremely competitive, and UPS battles several other major corporations, and this fierce competition can lead to margin compression

Competition:

Major publicly traded competitors of UPS include FedEx (NYSE: FDX) and J.B. Hunt Transport Services (NASDAQ: JBHT). FedEx is by far the biggest threat to UPS’ success, offering nearly identical services to UPS. FedEx is valued at $28.95 billion, pays out a dividend yielding 0.61%, and carries a price to earnings ratio of 14.80. J.B. Hunt offers a different form of transportation (by railroad), is valued at $6.96 billion, pays out a dividend yielding 1.02%, and carries a price to earnings ratio of 23.61.

The Foolish Bottom Line:

UPS is a global power in the shipping industry, and in all ways is a stable and steady investment. Since its initial public offering in 1999, the company is only up about 5.8%; however, when dividends are taken into consideration the return is much greater. The company possesses solid revenue growth and a growing dividend. UPS’ future is filled to the brim with opportunities, and the company should receive a significant boost from the holiday season. All in all, UPS is a great place to hide out the current economic maelstrom.


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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