United Parcel Service Inc (UPS)

Conclusion

United Parcel Service is a package delivery and logistics provider. It runs a U.S. Domestic Package segment and an International Package segment, and also offers air and ocean freight forwarding, contract logistics and customs brokerage. At 110.96 USD on 9 November 2026, its market capitalisation is 83.1 billion USD.

The verdict is undervalued. The P/E of 18.8x is in line with its ten-year median of 18.9x, but EV/EBITDA of 10.1x compares with a median of 11.5x, and P/FCF of 13.0x with a median of 20.6x. The DCF gives 132.69 USD per share at a discount rate of 9.6%. The fair value band runs from 121.34 to 182.02 USD, with a midpoint of 151.68 USD and a margin of safety of 36.7% at the current price. The fair value from historical multiples is 170.67 USD. The reverse DCF implies growth of 1.4% a year, against revenue growth of 1.0% a year over five years and free cash flow per share growth of -0.7% a year over the same period.

What holds the case up is a return on invested capital of 13.4% against a WACC of 8.2%, free cash flow conversion of 144.3% over the last twelve months, and seven earnings beats in the last eight quarters. What could break it is net debt to EBITDA of 2.22x, an operating margin of 7.1% against a ten-year median of 10.1%, and revenue down 3.9% a year over three years.

Financial health

Financial health is yellow: the current ratio of 1.24 is assessed good, while net debt to EBITDA of 2.22, interest coverage of 4.09 and the Altman Z-score of 2.84 are neutral. The quick ratio is 1.11, but debt to equity is 2.02, so the balance sheet relies heavily on borrowing. The Altman Z-score of 2.84 falls in the grey zone. That model was designed for manufacturers, and this company is not one, so the reading should be treated loosely. Insolvency risk is low, at about 1.1% by the estimate of the Ohlson model over one to two years. That estimate is based on year-end 2025 statements. The company does not report a debt maturity schedule, so the timing of refinancing needs cannot be judged from this data.

Earnings quality

Earnings quality is yellow, with the Piotroski score of 5 out of 9 and free cash flow conversion of 85.2% over five years as neutral readings. Over the last twelve months, conversion reached 144.3%, and the accrual ratio of -0.04 suggests cash generation is running ahead of reported earnings. Stock-based compensation is 0.14% of revenue, and free cash flow after it is 6.25 billion USD. The share count fell at a compound rate of 0.49% over five years, which points to buybacks. The Beneish M-score is not available, so manipulation risk cannot be assessed on this measure. Earnings surprises are favourable, with seven beats in eight quarters and an average surprise of 9.1%. Estimate revisions are weaker: for the current year, six estimates were cut and four raised in the last 30 days.

Profitability

Profitability is yellow: the return on invested capital of 13.4% against a WACC of 8.2% is assessed good, and the ROIC minus WACC value of 5.3% confirms value creation. Margins are below their ten-year medians: gross margin is 17.9% against 19.1%, operating margin 7.1% against 10.1%, and net margin 4.8% against 6.5%. The five-year median ROIC was 19.1%, so returns have compressed. The return on equity of 29.5% is inflated by leverage: the DuPont split shows a net margin of 6.3%, asset turnover of 1.21 and an equity multiplier of 4.50. The operating margin stability measure is 0.146. The returns case therefore rests on capital efficiency rather than on high margins or a strong balance sheet.

Growth

Growth is green because the EPS growth of 33.6% over five years, the consistency of revenue growth and the next-year EPS estimate growth of 11.2% are all assessed good. Revenue grew in eight of ten comparable years, yet its compound growth is -3.9% over three years, 1.0% over five years and 4.3% over ten years. EPS fell 20.9% a year over three years and rose 2.1% a year over ten years, so the five-year EPS figure reflects a recovery from a weak base. Free cash flow per share fell 19.4% a year over three years, -0.7% over five years and rose 0.1% over ten years. Growth is therefore uneven, and the green colour depends on the earnings recovery and forecasts rather than on top-line expansion.

Valuation

Valuation is green, because the verdict of undervalued carries a margin of safety of 36.7%, which is assessed good. At 110.96 USD, the P/E is 18.8x against a ten-year median of 18.9x, a premium of -0.3%. EV/EBITDA is 10.1x against 11.5x, a premium of -12.4%. P/FCF is 13.0x against 20.6x, a premium of -36.7%, and P/B is 5.5x against 20.5x, a premium of -73.0%. The DCF gives 132.69 USD per share at a discount rate of 9.6%, with a terminal value share of 52.2%. The reverse DCF implies growth of 1.4%, compared with five-year revenue growth of 1.0%. The dividend yield is 6.5%, with a payout of 84.9% of free cash flow.

Risks

The main risk is leverage. Net debt to EBITDA of 2.22x and interest coverage of 4.09x leave less room if earnings weaken, and the Altman Z-score of 2.84 offers only a moderate buffer. Margins below their medians, with the operating margin at 7.1% against 10.1%, mean that a further squeeze would reduce return on invested capital, which currently sits 5.3 points above the cost of capital as a given value. Revenue contracted over three years, and estimate revisions lean negative. The DCF is built on fixed assumptions and 52.2% of its value comes from the terminal value. The Beneish M-score is not available. This analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and the mix of domestic and international results cannot be tested.