Ken Heebner (Trades, Portfolio) is a growth oriented investor who co-founded Capital Growth Management, a money management firm with more than $6 billion under management. Recently, he initiated a long position in United Parcel Service (UPS, Financial) by buying 150,000 shares of the company. The following chart shows his holding history in the company.
The company's fundamentals look encouraging. Here's an analysis of the company in detail.
United Parcel Service was founded in 1907 as a private messenger and delivery service in Seattle, Washington. Today, UPS is the world’s largest package delivery company, a leader in the U.S. less-than-truckload industry and the premier provider of global supply chain management solutions. The company delivers packages each business day for 1.6 million shipping customers to 8.2 million receivers ("consignees") in over 220 countries and territories. In 2014, UPS delivered an average of 18 million pieces per day worldwide, or a total of 4.6 billion packages. Total revenue in 2014 was $58.2 billion.
UPS' volumes have benefited from the rapid growth of online retail over the last few years. During the peak season last year, the company averaged over 30 million deliveries per day, up 6 million from 2012 levels. In these two years, the company saw its peak volumes go from 55% above its average day to 75%. This trend is expected to continue with the growth of e-commerce businesses.
E-commerce growth represent both opportunity as well as challenges for the company. On the one side, the company is benefiting from growing volumes, while on the other the company needs to work on optimizing its operations to make sure that improved volumes results in higher profitability. From a long term perspective, the company continues to invest in technology and capabilities, with aim to bend the cost curve lower. At the same time, it is also pursuing specific revenue initiatives that will improve yields and help UPS achieve its financial objective.
In the shorter term, the company is focused on addressing cost overruns that it is witnessing due to changes in its peak order volumes. The company plans to improve productivity with a tighter dispatch, improved helper utilization and reduced overtime. The company also plans to expand hub capacity in key areas, ultimately reducing the need for temporary sorts. So, additional hiring and training costs associated with staffing the new sorts and facilities will be reduced going forward with permanent capacity expansions. In 2014, the company made a decision to conduct full operations on Black Friday with the expectations of smoothing the network during Cyber Week. While the company did achieve benefits for its hub and feeder network, the pick up and delivery network was underutilized. The company plans to adjust operations for better utilization of its network in 2015.
UPS has a high value offering in the market, which its customers appreciate. The company has several growth opportunities outside general economic expansion. E-commerce is expected to outpace global GDP growth by four-fold and cross border e-commerce is expected to grow even faster. These will be secular growth drivers for UPS. In addition, UPS' concentrated investment in growth industries like healthcare and retail puts it on a position to capitalize on market expansion.
The company is trading at a forward P/E of 17.53x and has a forward annual dividend yield of 2.90%. Out of 29 analysts covering the company, eight are positive and have buy recommendations, 21 have hold ratings and none has a sell or underperform rating. The company's EPS is expected to grow 8.8% in the current year and 12% next year. I believe the stock is a good buy given its reasonable valuations and good growth prospects.
