Stock Analysis on Net

United Parcel Service Inc. (NYSE:UPS)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

United Parcel Service Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.26%
01 FCFE0 7,352
1 FCFE1 7,440 = 7,352 × (1 + 1.19%) 6,511
2 FCFE2 7,644 = 7,440 × (1 + 2.75%) 5,855
3 FCFE3 7,972 = 7,644 × (1 + 4.30%) 5,345
4 FCFE4 8,439 = 7,972 × (1 + 5.85%) 4,952
5 FCFE5 9,064 = 8,439 × (1 + 7.41%) 4,655
5 Terminal value (TV5) 142,147 = 9,064 × (1 + 7.41%) ÷ (14.26%7.41%) 73,001
Intrinsic value of United Parcel Service Inc. common stock 100,319
 
Intrinsic value of United Parcel Service Inc. common stock (per share) $117.12
Current share price $134.60

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.42%
Expected rate of return on market portfolio2 E(RM) 13.74%
Systematic risk of United Parcel Service Inc. common stock βUPS 1.06
 
Required rate of return on United Parcel Service Inc. common stock3 rUPS 14.26%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rUPS = RF + βUPS [E(RM) – RF]
= 4.42% + 1.06 [13.74%4.42%]
= 14.26%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

United Parcel Service Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends 5,611 5,363 3,604 3,552 3,341
Net income 6,708 11,548 12,890 1,343 4,440
Revenue 90,958 100,338 97,287 84,628 74,094
Total assets 70,857 71,124 69,405 62,408 57,857
Equity for controlling interests 17,306 19,786 14,253 657 3,267
Financial Ratios
Retention rate1 0.16 0.54 0.72 -1.64 0.25
Profit margin2 7.37% 11.51% 13.25% 1.59% 5.99%
Asset turnover3 1.28 1.41 1.40 1.36 1.28
Financial leverage4 4.09 3.59 4.87 94.99 17.71
Averages
Retention rate 0.00
Profit margin 7.94%
Asset turnover 1.35
Financial leverage 25.05
 
FCFE growth rate (g)5 1.19%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income – Dividends) ÷ Net income
= (6,7085,611) ÷ 6,708
= 0.16

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 6,708 ÷ 90,958
= 7.37%

3 Asset turnover = Revenue ÷ Total assets
= 90,958 ÷ 70,857
= 1.28

4 Financial leverage = Total assets ÷ Equity for controlling interests
= 70,857 ÷ 17,306
= 4.09

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.00 × 7.94% × 1.35 × 25.05
= 1.19%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (115,295 × 14.26%7,352) ÷ (115,295 + 7,352)
= 7.41%

where:
Equity market value0 = current market value of United Parcel Service Inc. common stock (US$ in millions)
FCFE0 = the last year United Parcel Service Inc. free cash flow to equity (US$ in millions)
r = required rate of return on United Parcel Service Inc. common stock


FCFE growth rate (g) forecast

United Parcel Service Inc., H-model

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Year Value gt
1 g1 1.19%
2 g2 2.75%
3 g3 4.30%
4 g4 5.85%
5 and thereafter g5 7.41%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 1.19% + (7.41%1.19%) × (2 – 1) ÷ (5 – 1)
= 2.75%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 1.19% + (7.41%1.19%) × (3 – 1) ÷ (5 – 1)
= 4.30%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 1.19% + (7.41%1.19%) × (4 – 1) ÷ (5 – 1)
= 5.85%