United Parcel Service, Inc (UPS): what the price requires
At today's price, United Parcel Service, Inc (UPS) is priced for +2.8% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-17 · Source: https://boothcheck.com/report/UPS
Headline
| Field | Value |
|---|---|
| Ticker | UPS |
| Company | United Parcel Service, Inc |
| Current price | $112.72/sh |
| Composition | U.S. Domestic Package - Next Day Air 11% / U.S. Domestic Package - Deferred 5% / U.S. Domestic Package - Ground 50% / U.S. Domestic Package - Cargo & Other 1% / International Package - Domestic 4% / International Package - Export 16% / International Package - Cargo & Other 1% / SCS - Forwarding 3% / SCS - Logistics 7% / SCS - Other 2% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 4.0% |
| Operating margin today | 7.7% |
| Margin compression implied | -3.7pp |
| Implied growth | 2.8% |
| Multiple paid | 18x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.7% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~7.2pp.
Reconcile: at the x-ray's 9.3% required return this reads ~13.6%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.32σ |
| cohort percentile (of 225 peers) | 36 |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple; asset-based/earnings-power/growth-DCF land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.69x | 5 | expensive |
| Earnings | 1.69x | 3 | expensive |
| Relative | 0.65x | 3 | justifies |
| Growth | 1.82x | 4 | expensive |
Families that justify the price: Relative Families that call it expensive: Asset, Earnings, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.0%); the inversion above states its own rate.
Per-Model Detail (n=15)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $57.20 | 1.97x | yes | FCF base $4.5B, growth -3% (input: historical growth), terminal g 0.5%, WACC 9.0%, 5yr projection |
| DCF Exit Multiple | Growth | $100.72 | 1.12x | yes | Exit EV/EBITDA: 6.4x / 8.4x / 10.4x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $148.64 | 0.76x | yes | P/E 20x (static sector reference · 2026-04), scenarios: 16.9x / 20.0x / 23.1x (bear / base = reference held flat / bull), EV/EBITDA 13x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | $58.66 | 1.92x | yes | Stage 1: -11% for 5yr, Stage 2: 3.5% perpetual |
| Simple Excess Return | Asset | $66.76 | 1.69x | yes | BV/sh $18.54, ROE (TTM) 33.3%, ke 9.3% |
| Two-Stage Excess Return | Asset | $133.61 | 0.84x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $65.32 | 1.73x | yes | Rev $88.3B, growth -3% (input: historical growth; tapered), Terminal P/S: 0.9x / 1.1x / 1.3x (bear / base = today's held flat / bull, cap 8x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $104.38 | 1.08x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $10.29B × (1−23%) / WACC 9.0% → EPV (no growth) |
| Residual Income | Asset | $103.34 | 1.09x | yes | BV $18.54 + 5yr PV of (ROE (TTM) 33.3% − Kₑ 9.3%) × BV; BV grows 8.8%/yr |
| Graham Number | Asset | $50.78 | 2.22x | yes | √(22.5 × EPS $6.18 × BVPS $18.54) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $173.67 | 0.65x | yes | EBITDA $11.29B × sector EV/EBITDA 13.0x |
| FCF Yield | Earnings | $58.48 | 1.93x | yes | FCF $4516.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $5.18 | 21.76x | yes | EPS $6.18 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | $13.49 | 8.36x | yes | BV $18.54 × (ROIC 6.5% / WACC 9.0%) |
| P/Sales Sector | Relative | $207.80 | 0.54x | yes | Revenue $88.32B × sector P/S 2.0x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $66.81 | 1.69x | yes | EPS $6.18 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $19.9b |
| Net debt / NOPAT (after-tax) | 3.95x |
| Net debt / operating income (pre-tax) | 3.04x |
| Interest coverage | 6.4x |
| Share count CAGR (buyback) | -0.8% |
| Burning cash | no |
Bullet Takeaways
- UPS is deliberately shrinking to grow margins: it is cutting volume from its largest customer, telling investors in its 10-K it expects that customer's volume to decline to approximately 50% of year-end 2024 levels by mid-2026 as it shifts toward higher-yielding packages.
- The transition is costly in the near term: Q1 2026 revenue fell to $21.2 billion, operating margin dropped to 6.0% from 7.7%, and GAAP diluted EPS fell to $1.02 from $1.40 as restructuring costs hit.
- The number to watch is the dividend against free cash flow: UPS guided to roughly $6.5 billion of free cash flow in 2026 against a planned $5.4 billion dividend payout, a tight coverage that leaves little room if cash flow slips.
Bull Case
The balance sheet is what gives UPS room to run its transformation, and it is stronger than the headline volume declines suggest. The company carries net debt of about $19.9 billion, roughly 2.7 times operating income, with interest coverage near 7 times, a manageable load for an asset-heavy logistics network with stable, contracted freight flows. That capital structure matters because UPS is choosing to absorb large near-term costs, $1.3 billion to $1.5 billion of transformation spending in 2026 including about $1.2 billion for the Driver Choice separation program, in pursuit of a leaner, higher-margin network. A company with covered interest and steady cash generation can fund a multi-year restructuring without the financing strain that would force a leveraged competitor to abandon the plan halfway.
The strategic logic behind shedding volume is sound even if the optics are ugly. UPS is deliberately reducing its largest customer's volume to roughly half of 2024 levels by mid-2026, because that volume carried thin margins, and it is, in its own words, making a deliberate shift in our business to increase our focus on growing higher yielding volume. Trading low-yield packages for high-yield ones shrinks revenue but should lift profitability per piece. The cost program is already showing: UPS captured $600 million of network-efficiency savings in the first quarter alone, on a path toward $3 billion in year-over-year savings in 2026. If those savings land and the remaining volume is genuinely higher-yielding, the margin recovers even on a smaller base.
The returns the franchise can earn when it runs well are the reason to believe in the recovery. Return on equity sits near 33%, and the company reaffirmed a full-year 2026 target for a non-GAAP adjusted operating margin of 9.6%, above the depressed levels of the transition quarters. The price at about $105 sits below where the relative-multiple methods land, so the market is not paying a premium; it is pricing in the transition pain. The bull case is that a financially sturdy network is taking deliberate short-term losses to reset its margin structure, and the cost savings plus the higher-yield mix get it back to the profitability it has demonstrated before.
Bear Case
The structural truth a UPS holder has to sit with is that the company is shrinking on purpose, and shrinking is hard to value. Revenue is falling, not because UPS lost a competitive fight, but because it is choosing to walk away from its largest customer's volume, cutting it to roughly half of 2024 levels by mid-2026. The bet is that the lost low-yield volume is replaced by higher-yield volume fast enough to lift margins. But Q1 2026 showed the cost of the transition arriving before the benefit: revenue fell to $21.2 billion, average daily package volume dropped 7.7%, operating margin compressed to 6.0% from 7.7%, net income fell 27% to $864 million, and GAAP diluted EPS dropped to $1.02 from $1.40. The plan can work, but the window where revenue is gone and the replacement has not arrived is exactly the window the company is in now.
The dividend is the pressure point, and the math is tight. UPS guided to roughly $6.5 billion of free cash flow in 2026 against a planned dividend payout of about $5.4 billion. That leaves a thin cushion of about $1 billion to cover everything else, including the transformation costs, in a year when operating profit is depressed. A dividend that consumes the large majority of free cash flow during a margin trough is a fixed claim that the market watches closely, and any further volume or margin disappointment narrows the coverage toward the line. A logistics company defending a large payout through a self-imposed revenue reset is carrying a risk the price has to weigh.
The valuation reflects a business in flux. On trailing earnings the asset, earnings-power, and growth methods all land below the price, with normalized earnings power near $104 (June 28, 2026) and the perpetual-growth cash-flow method, fed by the negative recent growth, landing near $57. Only the relative-multiple methods reach above the price. The price is paying for the margin recovery the company is targeting, not for what it earns today, and the recovery depends on two things happening together: the cost savings landing and the higher-yield volume materializing. The peer comparison is essentially FedEx, the one direct competitor of scale, which is running its own efficiency program, so neither can lean on the other being weak. The bear is not that UPS is failing. It is that the company is mid-surgery, the dividend is tight, and the price already credits a clean recovery the transition quarters have not yet shown.
Valuation
The price is making a modest bet, which is the first thing to note about a stock the static methods call expensive. Inverting today's price near $105 implies operating growth under 2% a year on an operating margin near 2.9%, far below the 8.5% the business earns even now and the 9.6% it targets. In other words, the price does not require a return to peak; it requires the transition not to permanently impair the franchise. That framing matters because the trailing-earnings methods, run during a margin trough, understate what a recovered UPS earns.
The methods sort around the transition. The asset-based methods land below the price, with the simple excess-return method near $67 against a thin book value of $18.54 a share, though the two-stage version reaches $134 once it credits the high return on equity. The earnings-power methods land near $67 to $104, with normalized earnings power right around the current price at $104. The growth methods land low, near $57 to $95, dragged down by the negative recent revenue trajectory that the perpetual-growth model extrapolates. Only the relative-multiple methods sit above the price, with the EV/EBITDA-relative approach near $174 and the sector price-to-earnings method near $149. So the price is defended by peer multiples and called full by the methods anchored to today's depressed cash flow. The honest read is a business priced for its margin to recover toward the targeted level, not for the trough to be permanent.
Solvency is the swing factor, and it is where the bull and bear cases meet. Net debt of about $19.9 billion is 2.7 times operating income with interest coverage near 7 times, sturdy enough to fund the restructuring, but the dividend tightens the picture: a planned $5.4 billion payout against roughly $6.5 billion of guided free cash flow leaves little slack during the transition. The downside is bounded by a covered balance sheet and a recoverable margin; it is amplified by the fixed dividend claim landing in a low-cash-flow year. What the buyer is underwriting is that the cost program delivers and the higher-yield volume replaces what UPS is deliberately giving up, fast enough to restore both the margin and the dividend's comfortable coverage.
Catalysts
The defining catalyst is the Amazon volume glide-down, now in its final stretch. UPS is reducing its largest customer's volume to roughly half of 2024 levels by mid-2026, and Amazon represented about 10.6% of consolidated 2025 revenue, so the reduction is a deliberate and significant revenue event the company has telegraphed for over a year. The Q1 2026 report showed the effect: revenue of $21.2 billion, average daily package volume down 7.7%, and net income down 27% to $864 million, with operating margin falling to 6.0% from 7.7% as restructuring costs landed.
The cost and restructuring programs are the offsetting catalysts. UPS expects $1.3 billion to $1.5 billion of transformation-related costs in 2026, including about $1.2 billion for the Driver Choice separation program, and captured $600 million of network-efficiency savings in the first quarter on a path toward $3 billion of year-over-year savings in 2026. For the full year, the company reaffirmed consolidated revenue of about $89.7 billion and a non-GAAP adjusted operating margin target of 9.6%.
The catalysts to watch are the quarterly operating-margin prints, which show whether the cost savings are outrunning the volume loss, the revenue-per-piece trend that signals whether the higher-yield shift is working, and the free-cash-flow-to-dividend coverage, since the payout is the most-watched fixed claim through the trough. The completion of the Amazon reduction around mid-2026 is the inflection point after which the revenue base stops shrinking from that source and the underlying margin trajectory becomes the clean signal.
Peer Cohorts (Per Segment, With Filing Citations)
U.S. Domestic Package (reported)
- FDX (FedEx Corporation)
- (no filing in the citation store)
- SNDR (Schneider National, Inc.)
- (no filing in the citation store)
- ODFL (OLD DOMINION FREIGHT LINE, INC.)
- (no filing in the citation store)
- SAIA (Saia, Inc.)
- (no filing in the citation store)
- ARCB (ARCBEST CORPORATION)
- (no filing in the citation store)
- XPO (XPO, Inc.)
- (no filing in the citation store)
- KNX (Knight-Swift Transportation Holdings Inc.)
- (no filing in the citation store)
International Package (reported)
- FDX (FedEx Corporation)
- (no filing in the citation store)
- EXPD (EXPEDITORS INTERNATIONAL OF WASHINGTON, INC.)
- (no filing in the citation store)
- CHRW (C.H. ROBINSON WORLDWIDE, INC.)
- (no filing in the citation store)
- GXO (GXO Logistics, Inc.)
- (no filing in the citation store)
- ZTO (ZTO Express (Cayman) Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
UPS FY2024 10-K · UPS Q1 2026 earnings release, April 2026 · UPS 2026 outlook, April 2026