My efforts to find great companies is primarily based on analyzing the fundamentals of each company. It is almost impossible for the average investor to directly understand the effectiveness of a company’s IT spending. Luckily, we don’t have to because that effectiveness should result in growing revenue and growing profitability (which we can directly monitor).

As you read the annual reports of companies though, an important consideration is the CEO’s comments about how IT investment is helping the company. If you fail to see this line of commentary, it should be a red flag for you. Conversely, a strong emphasis by the executives on IT spend that offers competitive advantage should at least be a signal to you to continue watching the company’s performance.

From the cited WSJ article (article may be behind a paywall):

The secret of success for Amazon, Google and Microsoft is how much they invest in their own technology.

New data suggests that the secret of the success of the Amazons, Googles and Facebook s of the world—not to mention the Walmart s, CVSes and UPSes before them—is how much they invest in their own technology. IT spending that goes into hiring developers and creating software owned and used exclusively by a firm is the key competitive advantage. It’s different from our standard understanding of R&D in that this software is used solely by the company, and isn’t part of products developed for its customers.

Source: Why Do the Biggest Companies Keep Getting Bigger? It’s How They Spend on Tech

In recent weeks, speculation has mounted that Amazon.com Inc. [stckqut]AMZN[/stckqut] plans to launch a global shipping and logistics operation that will compete with United Parcel Service Inc. [stckqut]UPS[/stckqut] and FedEx Corp. [stckqut]FDX[/stckqut]

Asked about reports that the company was leasing planes and had registered an ocean freight booking business, Chief Financial Officer Brian Olsavsky downplayed Amazon’s ambitions last month in an earnings call. He said the company was simply looking to supplement its delivery partners — not replace them — during peak periods like the Christmas shopping season

A 2013 report to Amazon’s senior management team proposed an aggressive global expansion of the company’s Fulfillment By Amazon service, which provides storage, packing and shipping for independent merchants selling products on the company’s website. The report envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London. The project, called Dragon Boat, is proceeding, according to a person familiar with the initiative, who asked not to be identified because the information isn’t public.

Source: Amazon Building Global Delivery Business to Take On Alibaba – Bloomberg

Company name United Parcel Service, Inc.
Stock ticker UPS
Live stock price [stckqut]UPS[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Good
EBIT growth Good

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $160.76
Target stock price (averages with growth) $221.8
Target stock price (averages with no growth) $189.18
Target stock price (manual assumptions) $141.21

The following company description is from Google Finance: http://www.google.com/finance?q=ups

United Parcel Service, Inc. (UPS) is a package delivery company. The Company delivers packages each business day for 1.1 million shipping customers to 7.7 million consignees in over 220 countries and territories. During the year ended December 31, 2012, it delivered an average of 16.3 million pieces per day worldwide, or a total of 4.1 billion packages. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. The Company has three segments: U.S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S.A. In February 2014, United Parcel Service acquired Polar Speed Distribution Ltd.
Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in United Parcel Service, Inc. as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor. You can review the best companies that I have found (and I probably invest my own money in most of these companies) in my Watch List.

How was this analysis of United Parcel Service, Inc. calculated?

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(access_s2member_level1)]

In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

  • Stock price at the time of the calculation: $104.08
  • Growth: 0.17
  • Current EPS (TTM): $4.51
  • P/E: 23
  • Future EPS Calc: $9.88
  • Future Stock Price Calc: $227.42
  • Target stock price: $141.21

I hope that this makes you a better investor. [/s2If]

United Parcel Service (UPS) is currently rated as a Fair Company in my analysis.  The numbers are excellent in certain areas of their operations but their P/E compared to their peers is lower than it should be.  Also, they could stand better growth in Sales as well as better employee productivity.

However, the company is better than many companies and I would never ridicule anyone for owning its stock. I just think there are better companies on the market.

UPS just posted very good returns. If they continue this pace and fix a few other portions of their business, then they will be a Good Company very soon.  The following is from Business First:

United Parcel Service Inc.’s fourth-quarter net income rose 198 percent behind a strong performance from its international package business.

Atlanta-based UPS (NYSE: UPS) said fourth-quarter net income rose to $757 million from $254 million a year earlier. Earnings per share increased to 75 cents from 25 cents during the same period.

UPS’s earnings in the fourth quarter of 2008 included a $548 million goodwill impairment charge in the UPS Freight unit and a $27 million impairment charge in its European package operations.

Fourth-quarter revenue declined 2.5 percent, to $12.4 billion from $12.7 billion. Revenue in UPS’s international package business increased 5.8 percent, to $2.8 billion from $2.7 billion. Revenue in the domestic package operations fell 5.5 percent, to $7.6 billion from $8 billion. Revenue in UPS’s supply chain and freight division fell 1.8 percent, to $2 billion from $2.1 billion.

A consensus of financial analysts polled by Thomson Financial Network had predicted earnings of 74 cents per share on revenue of $12.3 billion.

UPS, which operates its largest international air cargo sorting hub, Worldport, at Louisville International Airport, had an average daily shipping volume of 17.3 million packages per day in the fourth quarter, unchanged from the year-earlier period.

Domestic volume declined to an average of 14.9 million packages per day from 15.1 million packages a year earlier. International volume during the same period increased to 2.4 million packages per day from 2.2 million.

UPS ended 2009 with $2.1 billion in cash and short-term investments.

“UPS ended 2009 on a high note by leveraging network changes implemented throughout the year and executing flawlessly during the peak holiday shipping period,” UPS chairman and CEO Scott Davis said in a news release.

“The company demonstrated its ability to manage effectively in changing market conditions,” he said. “UPS has emerged from the worst recession in decades leaner, more focused and better positioned to take advantage of global trade.”

For the full year, UPS reported net income of $2.2 billion, or $2.14 per share, compared with $3 billion, or $2.94 per share, a year earlier.

Revenue declined to $45.3 billion from $51.5 billion.

For the full year, UPS delivered 3.8 billion packages, an average of 15.1 million per day, down from 15.5 million per day in 2008, according to the release.

UPS predicted full-year 2010 earnings in the range of $2.70 to $3.05 per share.

“Economic forecasts indicate gradual improvement as 2010 unfolds,” UPS Chief Financial Officer Kurt Kuehn said in the release. “The first quarter will be the most challenging of the year for UPS with profitability only slightly better than last year.”

Company name United Parcel Service, Inc.
Stock ticker UPS
Live stock price [stckqut]UPS[/stckqut]
P/E compared to competitors Fair
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Good
EBIT growth Good
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $2692.6
Target stock price (averages with growth) $7027.99
Target stock price (averages with no growth) $576.16
Target stock price (manual assumptions) $62.67

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.