FIN 419: REAL CLIENT MANAGED PORTFOLIO, SPRING 2012
TUESDAY 10 TH APRIL 2012
NURUL ALAM RAFI
FRANK DAMIAN
MIKE OLLMANN
AMIN RIZWAN

Founded
Employees
Market Capitalization
April 9 th 2012 Closing Price
52 Week Range
SCREENING FIGURES
Trailing P/E

20.88 Forward P/E

14.45 PEG

1.28
1907
398,300
$76.8bn
$79.19
$60.74 - $81.79
Graham Approach
(20.88-8.5)/2 = 6.19%
Greenblatt Approach
EBIT/Total Assets

6.124 mil/19.238 mil = 31.8%
EBIT/Enterprise Value  6.124 mil/83.75 = 7.3%
Total: 39.1%
GICS: Air Freight & Logistics (203010)

Source: http://finance.yahoo.com/q/bc?t=my&s=UPS&l=on&z=l&q=l&c=&c=%5EGSPC

Source: http://finance.yahoo.com/q/ta?s=UPS&t=2y&l=on&z=l&q=l&p=m20%2Cm200&a=&c=

UPS is a package delivery and supply chain management company that operates globally. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories.
During the year ended December 31, 2011, UPS delivered an average of 15.8 million pieces per day worldwide, or a total of 4.01 billion packages .
Total revenue in 2011 was $53.1 billion. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing.
It operates in three segments: U.S. Domestic Package, International Package and Supply Chain & Freight.
In February 2012, it acquired Kiala S.A. In February 2011 , the Company announced the expansion of its UPS Express Freight service into Israel and
Slovakia. In December 2011 , it acquired Pieffe Group , an Italian pharmaceutical logistics company.
Source: 2011 UPS 10-K, p. 1-3

Source: 2008, 2009, 2010, 2011 UPS Annual Reports
2008
Revenue by
Business Area
US Domestic 61%
International 22%
Supply Chain 17%
2009
62%
21%
17%
2010
60%
22%
18%
2011
60%
23%
17%
Revenue by
Geography
U.S.
International
75%
25%
76%
24%
74%
26%
74%
26%

RECENT DEVELOPMENTS
March 19 th 2012 – UPS buy-out Dutch logistics company TNT
Express N.V. (AMS: TNTE) for 5.16bn ($6.77bn). Offered a 54% premium (9.50 Euros) per share for TNT.
MANAGEMENT THOUGHTS
Trade across borders is predicted to grow at least twice as much as U.S. and global domestic production
Expect international growth and expansion in global trade to be a catalyst for UPS's growth
Source:
UPS Investor Relations, http://www.investors.ups.com/phoenix.zhtml?c=62900&p=irol-newsArticle&ID=1673750&highlight=
2011 UPS Annual Report, p. 24.

• Major Players
• UPS and FedEx are the largest package-delivery firm and express delivery firm respectively
• Deutsche Post handles mail delivery in Germany, and international freight through its DHL Unit
• TNT handles international express and mail services, and has a high likelihood of being acquired by UPS
Source: http://clients.ibisworld.com/globalindustry/keycompetitors.aspx?indid=1660

• Concerns with Europe and high gas prices suppressing future growth
– Climbing unemployment in Europe
• Rising labor costs in developing markets
• Slowdown in emerging markets, such as China, reflects a weakening in demand

• 18% increase in manufactured goods exports in 2010.
– 30% growth in Asian markets.
• U.S., China, and Germany accounted for 1/3 of world merchandise trade in 2010.
• USA pass three free trade agreements with South Korea,
Columbia and Panama in 2011.
• Majority of trade flows between regions.
– 65% of EU merch. traded between EU countries.
Source: WTO International Trade Statistics 2011

• Major Market Segmentation
• Over half goes to business services at 54%, with retail and wholesale at 28%, Households at 10%, and other for the remaining 8%
Source: http://clients.ibisworld.com/globalindustry/segmentation.aspx?indid=1660

White outs
• Purchases
• Fuel represents the largest portion
• Combatted with hedges and fuel surcharges
• Wages
• Labor intensive industry
• Worse for smaller couriers
Source: http://clients.ibisworld.com/globalindustry/segmentation.aspx?indid=1660

White Out
• North America
• Focus on increased efficiencies and cost reduction
• Asia-Pacific
• Continual development of distribution networks and expansion
Source: http://clients.ibisworld.com/globalindustry/segmentation.aspx?indid=1660

• GDP Growth & Inflation
– Determines level of disposable income and consumer confidence, affecting the demand for courier services
• World Crude Oil Prices
– Direct impact on profitability and growth
• Telecommunication Services/Internet Connections
– Increase in online shopping and cross-border transactions

• After the market decline in 2008, the demand for courier services has recovered and is expected to continuously increase as the demand for express JIT delivery also increases
Source: http://clients.ibisworld.com/globalindustry/outlook.aspx?indid=1660

• Threat of New Entrants (Medium)
– Low barriers for smaller markets, however as fuel costs & labor rates rise rise they will struggle to achieve economies of scale
• Threat of Substitutes (Medium)
– Many small couriers
– Hard to match UPS’ large scale efficiency
• Power of Suppliers (High)
– Fuel is necessary for almost all operations
• Power of Buyers (Low-Medium)
– Few firms can rival the scale & efficiency of UPS or FedEx
– No choice for retail consumers
• Rivalry (High)
– Small Firms, Gov’t Postal Services, other international couriers

Holder
VANGUARD GROUP, INC. (THE)
STATE STREET CORPORATION
Capital Research Global Investors
BlackRock Institutional Trust Company, N.A.
PRICE (T.ROWE) ASSOCIATES INC
WELLINGTON MANAGEMENT COMPANY, LLP
FMR LLC
BANK OF AMERICA CORPORATION
Bank of New York Mellon Corporation
MASSACHUSETTS FINANCIAL SERVICES CO - OTHER
Shares
33,972,426
31,223,019
30,748,100
22,572,993
22,128,173
16,180,092
15,157,555
14,987,508
11,696,241
10,135,755
% Outstanding
4.69
2.24
2.09
2.07
1.62
1.40
4.31
4.25
3.12
3.06
Value ($)
2,486,441,858
2,285,212,760
2,250,453,439
1,652,117,357
1,619,560,981
1,184,220,933
1,109,381,450
1,096,935,710
856,047,878
741,835,908
• 69% of shares owned by institutional investors
Source: Yahoo Finance, reported December 31 st 2011

FedEx Corporation (NYSE: FDX)
International courier
UPS's largest and most direct competitor
JB Hunt Transport Services Inc (Nasdaq: JBHT)
One of the largest transportation logistics companies in the US
Smaller sized competitor (UPS 10 times bigger market cap)
Focuses mainly on ground transportation with their fleet of over 4,500 contractor trucks
Value
P/E
EV/EBITDA
EV/Revenue
Final Value
$ 79.18
$ 76.47
$ 75.95
$ 76.43
33%
33%
33%

Current Stock Price (09/04/2012) $79.19
Public Comp Value $76.43
DCF Value $76.78
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