Stock Analysis on Net
Stock Analysis on Net

United Parcel Service Inc. (NYSE:UPS)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

United Parcel Service Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.33%
01 FCFF0 5,625
1 FCFF1 5,996 = 5,625 × (1 + 6.59%) 5,199
2 FCFF2 6,434 = 5,996 × (1 + 7.31%) 4,837
3 FCFF3 6,950 = 6,434 × (1 + 8.03%) 4,531
4 FCFF4 7,558 = 6,950 × (1 + 8.75%) 4,273
5 FCFF5 8,274 = 7,558 × (1 + 9.47%) 4,056
5 Terminal value (TV5) 154,585 = 8,274 × (1 + 9.47%) ÷ (15.33% – 9.47%) 75,774
Intrinsic value of United Parcel Service Inc. capital 98,670
Less: Long-term debt and finance leases, including current maturities (fair value) 23,581
Intrinsic value of United Parcel Service Inc. common stock 75,089
 
Intrinsic value of United Parcel Service Inc. common stock (per share) $88.26
Current share price $95.82

Based on: 10-K (reporting date: 2025-12-31).

1 See details »

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.

Weighted Average Cost of Capital (WACC)

United Parcel Service Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 81,522 0.78 18.74%
Long-term debt and finance leases, including current maturities (fair value) 23,581 0.22 3.53% = 4.54% × (1 – 22.14%)

Based on: 10-K (reporting date: 2025-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 850,781,582 × $95.82
= $81,521,891,187.24

   Long-term debt and finance leases, including current maturities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.20% + 22.30% + 21.80% + 22.10% + 22.30%) ÷ 5
= 22.14%

WACC = 15.33%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

United Parcel Service Inc., PRAT model

Microsoft Excel
Average Dec 31, 2025 Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021
Selected Financial Data (US$ in millions)
Interest expense 1,017 866 785 704 694
Net income 5,572 5,782 6,708 11,548 12,890
 
Effective income tax rate (EITR)1 22.20% 22.30% 21.80% 22.10% 22.30%
 
Interest expense, after tax2 791 673 614 548 539
Add: Dividends 5,565 5,594 5,611 5,363 3,604
Interest expense (after tax) and dividends 6,356 6,267 6,225 5,911 4,143
 
EBIT(1 – EITR)3 6,363 6,455 7,322 12,096 13,429
 
Current maturities of long-term debt and finance leases 608 1,838 3,348 2,341 2,131
Long-term debt and finance leases, excluding current maturities 23,519 19,446 18,916 17,321 19,784
Equity for controlling interests 16,227 16,718 17,306 19,786 14,253
Total capital 40,354 38,002 39,570 39,448 36,168
Financial Ratios
Retention rate (RR)4 0.00 0.03 0.15 0.51 0.69
Return on invested capital (ROIC)5 15.77% 16.99% 18.50% 30.66% 37.13%
Averages
RR 0.28
ROIC 23.81%
 
FCFF growth rate (g)6 6.59%

Based on: 10-K (reporting date: 2025-12-31), 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31).

1 See details »

2025 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,017 × (1 – 22.20%)
= 791

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 5,572 + 791
= 6,363

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,363 – 6,356] ÷ 6,363
= 0.00

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,363 ÷ 40,354
= 15.77%

6 g = RR × ROIC
= 0.28 × 23.81%
= 6.59%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (105,103 × 15.33% – 5,625) ÷ (105,103 + 5,625)
= 9.47%

where:

Total capital, fair value0 = current fair value of United Parcel Service Inc. debt and equity (US$ in millions)
FCFF0 = the last year United Parcel Service Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of United Parcel Service Inc. capital

FCFF growth rate (g) forecast

United Parcel Service Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.59%
2 g2 7.31%
3 g3 8.03%
4 g4 8.75%
5 and thereafter g5 9.47%

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

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.59% + (9.47% – 6.59%) × (2 – 1) ÷ (5 – 1)
= 7.31%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.59% + (9.47% – 6.59%) × (3 – 1) ÷ (5 – 1)
= 8.03%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.59% + (9.47% – 6.59%) × (4 – 1) ÷ (5 – 1)
= 8.75%