Is UPS the Perfect Stock? - Motley Fool
The recession hasn't been kind to UPS, which comes in with a score of 3. The shipping and delivery company is a bellwether for economic conditions, and when overall business activity is slow, UPS doesn't get the volume it needs to reap the biggest profits from its sophisticated and capital-intensive operational structure.
UPS has followed a slightly different course from rival FedEx (NYSE: FDX). UPS's higher debt levels boost its returns on equity, but they also bring more risk from leverage if things go badly.
What some don't realize about UPS, however, is that it doesn't just deliver packages. It also has a freight services business that competes with truckload and less-than-truckload carriers like YRC Worldwide (Nasdaq: YRCWD) and Landstar System (Nasdaq: LSTR). UPS's freight and supply chain segment represented 16% of its overall revenue in 2009, but it's a low-margin business that pulls down UPS's overall profit margins.
It's easy to conclude that once a global recovery takes hold, UPS should benefit. But the stock's valuation already seems to be pricing that recovery in. With shares already fairly rich, UPS may not rise as much as other beaten-down transportation companies. But for conservative investors who don't want a whole lot of volatility, UPS offers stability and a good dividend.
The recession hasn't been kind to UPS, which comes in with a score of 3. The shipping and delivery company is a bellwether for economic conditions, and when overall business activity is slow, UPS doesn't get the volume it needs to reap the biggest profits from its sophisticated and capital-intensive operational structure.
UPS has followed a slightly different course from rival FedEx (NYSE: FDX). UPS's higher debt levels boost its returns on equity, but they also bring more risk from leverage if things go badly.
What some don't realize about UPS, however, is that it doesn't just deliver packages. It also has a freight services business that competes with truckload and less-than-truckload carriers like YRC Worldwide (Nasdaq: YRCWD) and Landstar System (Nasdaq: LSTR). UPS's freight and supply chain segment represented 16% of its overall revenue in 2009, but it's a low-margin business that pulls down UPS's overall profit margins.
It's easy to conclude that once a global recovery takes hold, UPS should benefit. But the stock's valuation already seems to be pricing that recovery in. With shares already fairly rich, UPS may not rise as much as other beaten-down transportation companies. But for conservative investors who don't want a whole lot of volatility, UPS offers stability and a good dividend.
