Insights

• UPS is facing a challenging macroeconomic environment, which is impacting revenue growth and profitability.
• The company is effectively controlling operating expenses, but this is not enough to offset the decline in revenue.
• The company's liquidity position is healthy, but should be monitored closely.
• The company's long-term solvency is strong, but its reliance on debt financing could increase financial risk in the future.
• The company's asset utilization efficiency is strong, but its capital expenditure efficiency is declining.
• The company's dividend growth is sustainable, and its capital allocation strategy is focused on shareholder returns.
• The company faces a variety of operational, financial, legal, and regulatory risks that could materially affect its business.
• The company's future outlook is uncertain, but it is expected to continue to focus on cost-cutting initiatives to improve efficiency and maintain its strong profitability.

Analysis

• Revenue - Revenue is decreasing, indicating a challenging macroeconomic environment. - The company is demonstrating pricing power while navigating a competitive landscape. - The company is undertaking enterprise-wide transformation initiatives to right-size the business and enhance efficiency.
  • Profitability
    • Profitability is declining, but remains strong compared to the industry average.
    • The company is effectively controlling operating expenses, but this is not enough to offset the decline in revenue.
    • The company is demonstrating pricing power while navigating a competitive landscape.
  • Liquidity
    • The company's liquidity position is healthy, as indicated by the current ratio being slightly above 1.
    • The decreasing trend in cash and short-term investments suggests a potential need to monitor liquidity closely.
  • Solvency
    • The company's long-term solvency is strong, as indicated by the high return on average total equity.
    • The increasing long-term debt suggests a reliance on debt financing, which could increase financial risk in the future.
  • Operational Efficiency
    • The company's asset utilization efficiency is strong, as indicated by the high return on average total assets.
    • The company's capital expenditure efficiency is declining, as indicated by the decrease in capital expenditures.
  • Cash Flow Analysis
    • The company's free cash flow is expected to remain under pressure in the near term.
    • The company's dividend growth is expected to remain sustainable.
    • The company's capital allocation strategy is expected to remain focused on shareholder returns.
  • Risk Factors
    • The company faces a variety of operational, financial, legal, and regulatory risks that could materially affect its business, including economic conditions, competition, cybersecurity, climate change, and legal/regulatory compliance.
    • The decreasing trend in shareholders' equity and the increasing provision for risks and charges are potential red flags that should be monitored closely.
    • The company's capital structure is heavily reliant on debt financing, which could increase financial risk in the future.
  • Future Outlook
    • The company's revenue growth is expected to continue to slow down in the near term.
    • Profitability margins are expected to remain under pressure.
    • The company is expected to continue to focus on cost-cutting initiatives to improve efficiency.
    • The company's free cash flow is expected to remain under pressure in the near term.
    • The company's dividend growth is expected to remain sustainable.
    • The company's capital allocation strategy is expected to remain focused on shareholder returns.

Benchmarks (as of 2025-01-17)

• Performance Comparison: UPS has consistently underperformed XLI over all periods, with the underperformance becoming more significant over longer timeframes. This suggests that UPS has struggled to keep pace with the broader industrial sector.
• Risk and Return Analysis: UPS has provided lower annualized returns than XLI, indicating that it has not been as profitable for investors. However, UPS has also been significantly more volatile than XLI, with larger drawdowns and a higher frequency of significant declines. This suggests that UPS carries a higher risk profile than XLI.
• Risk-Adjusted Performance: XLI has consistently offered a better risk-adjusted return than UPS, as evidenced by its higher Sharpe ratio. This indicates that XLI has been more efficient at generating returns relative to its risk. UPS's lower beta suggests that it is less sensitive to market movements, which could be seen as a positive for investors seeking lower volatility.
• Overall Assessment: UPS has underperformed XLI in terms of both absolute and risk-adjusted returns. While UPS's lower beta suggests a lower risk profile, its higher volatility and larger drawdowns indicate that it carries a greater risk for investors. The recent trends suggest that UPS's volatility and sensitivity to market movements are increasing, which could further exacerbate its underperformance. Investors seeking exposure to the industrial sector may find XLI to be a more attractive investment option due to its superior risk-adjusted returns and lower volatility.

Peers Price History(as of 2025-01-17)

• Performance Comparison: UPS has generally underperformed both FDX and EXPD over the past three years, with particularly significant underperformance in the 1-year, 2-year, and 3-year periods. However, UPS has outperformed its peers in the shorter timeframes, such as the YTD, 1-week, and 1-month periods. This suggests that UPS may be experiencing a period of relative weakness compared to its peers, but it could potentially rebound in the future.
• Risk and Return Analysis: While UPS has underperformed its peers in terms of annualized returns, it has also exhibited lower annualized volatility. This suggests that UPS may be a less risky investment than FDX and EXPD, but it also comes with lower potential returns. The maximum drawdown figures further support this conclusion, with UPS experiencing a significantly higher maximum drawdown than its peers. This indicates that UPS is more susceptible to significant price declines, which could be a concern for investors seeking a more stable investment.
• Risk-Adjusted Performance: The Sharpe Ratio analysis reveals that FDX has consistently offered better risk-adjusted returns than UPS and EXPD. This suggests that FDX has been able to generate higher returns for the level of risk taken. UPS's Sharpe ratio has been lower than FDX's, indicating that it has not been as efficient in generating returns relative to its risk. The beta analysis further supports this conclusion, with FDX exhibiting a higher beta than UPS and EXPD, indicating that it is more sensitive to market movements.
• Overall Assessment: UPS has underperformed its peers in terms of both absolute and risk-adjusted returns over the past three years. While it has exhibited lower volatility and a lower maximum drawdown, this comes at the cost of lower potential returns. FDX, on the other hand, has consistently outperformed its peers in terms of both returns and risk-adjusted returns, but it has also been significantly more volatile. Investors seeking a less risky investment with lower potential returns may consider UPS, while those seeking higher potential returns with higher risk may consider FDX. EXPD has generally fallen somewhere in between UPS and FDX in terms of performance, risk, and risk-adjusted returns.

Peers Fundamentals(as of 2024-09-30)

1. Market Position and Size:

   • UPS is the largest company in the peer group, with a market capitalization of 110708.0 million, significantly exceeding FedEx Corp. (FDX) at 66258.1 million and Expeditors International of Washington, Inc. (EXPD) at 15446.4 million.
   • UPS's market cap is roughly 1.67 times larger than FedEx and 7.18 times larger than Expeditors, suggesting a dominant market position within the "Air Freight/Couriers" industry.
   • There is a strong correlation between market cap and revenue, EBITDA, and net income for all three companies, indicating that larger market capitalization is generally associated with greater financial performance.

2. Profitability and Efficiency:

   • UPS's profitability metrics are mixed compared to its peers and industry averages. While its Gross Profit Margin is lower than the industry average, its EBITDA Margin and Net Profit Margin are significantly higher, indicating strong operational efficiency and a solid financial foundation.
   • UPS demonstrates strong efficiency in generating returns, exceeding its peers and industry averages across various metrics, highlighting its ability to effectively utilize its assets, capital, and equity to drive profitability and shareholder value.

3. Financial Health and Stability:

   • UPS's liquidity and solvency metrics are generally strong compared to its peers and industry averages. While its Current Ratio and Quick Ratio are slightly lower than the industry average, its Total Debt to Total Equity Ratio and Debt / EBITDA ratio are significantly lower, indicating a more conservative debt strategy.
   • UPS's overall financial health is generally strong, with a solid financial foundation and a conservative debt strategy. Its strong cash flow generation, efficient operations, and low debt levels provide a buffer against economic downturns and support its long-term growth.

4. Valuation and Market Perception:

   • UPS's valuation metrics are generally in line with its peers and industry averages. While its Price to Book Ratio is significantly higher than the industry average, its other valuation metrics are generally in line with its peers and the industry.
   • The market's valuation of UPS suggests that it is placing a premium on factors beyond earnings per share, such as size, market position, and growth potential.

5. Cash Flow and Capital Management:

   • UPS demonstrates strong cash flow generation capabilities, exceeding its peers in both Net Operating Cash Flow and Free Cash Flow. This highlights its ability to generate significant cash from its operations and invest in its future growth.
   • UPS's Total Capital Expenditure is higher than its peers, suggesting that it is investing heavily in its infrastructure and growth initiatives.

6. Growth and Future Prospects:

   • UPS's growth trends are mixed compared to its peer group average. While it shows consistently higher growth in Free Cash Flow and Free Cash Flow Margin, it consistently underperforms in Sales/Revenue, EBITDA, Net Income, Basic Earnings per Share, and EBIT Margin.
   • UPS's long-term growth trends in Net Income, Basic Earnings per Share, and Free Cash Flow are significantly different from its peers.
   • UPS's growth is not balanced across different metrics, with strong growth in Free Cash Flow and Free Cash Flow Margin but weak growth in revenue and profitability metrics.
   • The lack of corresponding profit growth with revenue growth raises a potential red flag, suggesting that UPS may be struggling to translate revenue growth into profitability.

7. Potential for Investment:

   • UPS presents a mixed investment proposition. Its strong financial health provides a solid foundation for long-term growth. However, its declining growth rates in key revenue and profitability metrics raise concerns about its ability to sustain its market share and competitive position. Additionally, its market valuation premium may not be fully justified by its current financial performance.

8. Key Risks and Considerations:

   • UPS's declining growth rates in key revenue and profitability metrics raise concerns about its ability to sustain its market share and competitive position in the face of increasing competition.
   • UPS's market valuation premium may not be fully justified by its current financial performance.

9. Overall Assessment:

   • UPS is a financially strong company with a dominant market position. However, its declining growth rates in key revenue and profitability metrics raise concerns about its ability to sustain its market share and competitive position. Investors should carefully consider these factors when evaluating UPS as an investment opportunity.