United Parcel Service (UPS)

Total return at 5 years: 12.4%/year = 6.1% appreciation + 6.4% dividend. The target price ($128) is ex-dividend; the $34 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $200 · Multiples $132) exceeds the market price ($95).

Today — fairly valued: at $95 trades ~28.0% below its value discounted to today (~$132); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($128) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$86.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($95) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-6.4%/year) than we project (7.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.4 bn of owner earnings in year 5 (vs ~$8.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT normalizado (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 (TTM to Jun-2026) uses normalized EBIT, excluding the Transformation Strategy charges (~US$1.69 billion in the TTM, mainly the Driver Choice Program of the second quarter of 2026), consistent with the company's own non-GAAP guidance and with its GAAP/non-GAAP reconciliation published in every earnings release. GAAP TTM EBIT (US$6.58 billion) is temporarily depressed by those charges; the normalized figure (~US$8.26 billion) is the basis of the path. Year 1 anchors to the raised guidance in the release of 28-Jul-2026 (revenue ~US$91.2 billion, non-GAAP adjusted operating income ~US$8.65 billion), which the company justifies by having completed the phased and planned reduction of Amazon volume and by the benefits of the network reconfiguration program (~US$3 billion expected in full-year 2026, of which ~US$1.2 billion was already achieved in the first half). The margin keeps expanding moderately through year 5 as the transformation program concludes (planned for 2027) and the revenue mix tilts toward healthcare, small and medium enterprises and international, which carry higher margins than the low-yield volume being retired. Capex is treated as mostly maintenance (maintPct 0.95): with revenue practically flat over the last three fiscal years, current capex mainly replaces existing assets (network automation, fleet) rather than funding capacity expansion, other than a minor growth component in cold chain for healthcare. The model is at the enterprise level (EV, pre-interest): real cash and debt in the common block, and no excess cash is accumulated because the dividend (~US$5.4 billion guided for 2026) absorbs almost all projected net income and the buyback is practically paused (US$0 in the TTM).

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $128 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $95, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $128 in 5 years plus $34 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $132. Against the current market price ($95), the margin of safety is 28.0% (trades below the maximum → there is margin) and the total return at that price would be 12.4% annually.

• Multiple within the package delivery band. 11× normalized EV/EBIT, the low-to-mid part of the archetype's 10×-14× band.
• High dividend yield. Current dividend yield of ~6.4% at the market price, though with almost no growth.
• Normalized base, not raw GAAP. The valuation uses EBIT excluding transformation charges, avoiding penalizing the base for a non-recurring cost.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (98%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC above the bar. Return on invested capital of ~14.7%, comfortably above the 10% bar.
• Temporarily depressed cash generation. Reported FCF is compressed by the transformation charges and network reconfiguration capex.
• Elevated financial leverage. Total debt ~US$24.5 billion against equity of ~US$15.1 billion.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

UPS's revenue breaks down as average daily volume × revenue per piece, by segment (U.S. Domestic, International). The current dynamic is volume declining while price/mix rises: the company is deliberately trading lower-yield volume (Amazon, Ground Saver) for higher revenue per piece, unlike a marketplace where both factors typically move in the same direction.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent revenue contraction. Consolidated revenue declined in three of the past four fiscal years, mostly by the company's own decision (Amazon's exit).
• Raised 2026 guidance. The company raised its revenue and adjusted operating profit guidance in the July 2026 release.
• Mix shift toward higher margin. Healthcare, SMBs and international are growing as a share of volume, offsetting Amazon's exit.

• Hard-to-replicate network scale. Integrated air and ground network across more than 200 countries, with operating density accumulated over decades.
• Eroding moat. Amazon's exit, USPS competition and retailers' in-house logistics are pressuring higher-yield volume.
• Partial pricing power. Revenue per piece rose 6.6% in 2025 despite the volume decline, but at the cost of losing low-margin customers.
• Diversification into healthcare. More than US$11 billion in healthcare logistics revenue in 2025, a higher-margin vertical with a higher technical barrier.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.7x
• ✓Interest coverage (EBIT / interest)8.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 98% of ROIC
• ✓Value creation (ROIC − 10% bar)+9pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.1x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Financial leverage. Total debt ~US$24.5 billion against equity of ~US$15.1 billion.
• Liquidity. Cash and equivalents of US$4.7 billion against current debt maturities of ~US$634 million.
• Pension obligations. US$6.3 billion in pension and post-retirement benefit obligations, plus multiemployer plans with uncertain future contributions.

• Restructuring execution. The transformation program is progressing as guided, but does not conclude until 2027; execution risk remains.
• Capital discipline. Buybacks practically paused and dividend nearly frozen, prioritizing payout sustainability over growth in capital returns.
• Transparency. The company publishes detailed non-GAAP reconciliations and quarterly guidance, facilitating normalization of the transformation charges.

• Trailing-twelve-month GAAP EBIT is depressed by ~US$1.69 billion of non-recurring transformation charges, which makes UPS look more expensive than it is on a normalized basis (motivated sellers: GAAP earnings do not reflect underlying earnings power).
• The market is pricing in a moat that is perceived as eroding due to Amazon's deliberate exit and structural competition from the USPS and retailers' in-house logistics, in a business with significant financial and labor leverage.
• The nearly frozen dividend (growth of just ~0.6% annually over the past two fiscal years) signals to an income-oriented investor that the company has little slack, which weighs on the multiple despite the raised guidance from July 2026.

The deliberate reduction of Amazon volume ('completed' according to the company itself) and the raised guidance in the July 2026 release are the concrete catalyst that supports the thesis that the market is over-discounting the restructuring's execution risk.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +5%/year (+26% total): the margin of safety protects the downside. The bull (+20%/year, +150% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Customer concentration. Amazon accounted for 10.6% of consolidated revenue in 2025, with an ongoing 50% volume reduction.
• Labor relations. Nearly 80% of U.S. personnel unionized under the Teamsters agreement, in effect through 2028.
• Restructuring execution. The network reconfiguration program does not conclude until 2027; cost savings depend on complex multi-year execution.
• Fuel costs. Direct exposure to jet fuel, diesel and gasoline prices for a large-scale fleet.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 8% at a multiple/growth of 1.6 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 19% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -6% vs our 8%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +15%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: efficient scale, network effects, cost advantage, intangibles, switching costs → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -6%, within what we project (8%) — the story squares with the numbers.