United Parcel Service (UPS) is a global logistics and package delivery giant that offers services including transportation, distribution, ground freight, ocean freight, insurance and financing, notes Ben Reynolds, editor of Sure Retirement.

UPS reported fourth-quarter and full-year earnings on January 30th. Fourth-quarter revenue stood at $20.57 billion, up 3.6% year-over-year, thanks to strong average peak holiday season daily volume growth. Adjusted net income grew by 8.9% year-over-year and adjusted earnings-per-share grew by 8.8% year-over-year to $2.11.

For fiscal 2019, UPS saw its revenue grow by 3.1% to a whopping $74.1 billion thanks to strong volume growth in the United States. Adjusted earnings-per-share grew by a healthy 4% to $7.53. Looking ahead to fiscal 2020, UPS expects adjusted EPS to come in between $7.76 and $8.06.

As the largest logistics/package delivery company in the U.S., UPS has strong efficient scale, cost advantage, and network effect competitive advantages.

The macro environment is beneficial for the whole industry, thanks to the megatrend of online shopping, as well as a strong economy. None of the big players have an interest in a price war, so volumes could continue to rise even if base pricing is increased over time.

Competitive pressures should therefore remain muted for the foreseeable future, though Walmart’s and Amazon’s rise as logistics giants should continue to be monitored, especially as they continue to grab e-commerce market share.

United Parcel Service is certainly not recession resistant, as volumes would very likely decline in a recession. However, it did remain profitable during the last recession and we expect it will during the next one as well.

Given that it did not cut its dividend during the last financial crisis and the conservative level of its current payout ratio, we believe that a dividend cut is unlikely, although not impossible, if a steep recession were to begin in the near future.

Healthcare markets, e-commerce growth, and developing nations have fueled much of UPS’ recent growth, and there remains plenty of growth opportunity in all three.

Furthermore, the company’s efforts to reorganize its operations should result in new efficiencies that will combine with growing economies of scale and demand to generate strong returns on capital and top and bottom-line growth for years to come.

UPS stock trades for a price-to-earnings ratio of 11.5, compared with our fair value estimate of 16.0. As a result, UPS stock appears to be substantially undervalued, which could result in returns of 6.9% per year due to multiple expansion over the next half decade.

Expected annual EPS growth of 6% over the next five years and the current dividend yield of 4.3% combine with anticipated multiple expansion to produce our estimate of 17.2% in annualized total returns over the next half decade.

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