United Parcel Service, Inc.UPSNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $225.17 per share(market-calibrated)

+96.8%

Upside to Fair Value

Current

$114.41

Pure Model

$233.18

Fair Value

$225.17

Bull Case

$289.59

Bear Case

$184.72

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.64%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $233.18.

What's Driving This Ratingfor UPS

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.90% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$1.8B in annual FCF. This is the biggest driver of long-term cash flow improvement.

→

Moderate revenue growth

Analyst consensus projects 0.58% revenue growth, fading to 2.25% by Year 10. Revenue reaches $130.0B (vs $88.6B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $195.69/share (19.4x terminal FCF) while exit multiple gives $270.67/share (29.3x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 61.53% indicates efficient cash generation. FCF reaches $13.3B by Year 10 (10.23% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.09

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.39%

Cost of Debt

Pre-tax Cost of Debt2.49%

Tax Rate22.22%

After-tax Cost of Debt1.94%

Equity Weight (E/V)75.05%

Debt Weight (D/V)24.95%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (75.05% × 9.39%) + (24.95% × 1.94%)

= 7.53%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$89.2B	$95.5B	$108.0B	$118.9B	$130.0B
EBIT	$11.1B	$11.9B	$13.4B	$15.0B	$16.7B
Tax	$2.5B	$2.6B	$3.0B	$3.3B	$3.7B
NOPAT	$8.6B	$9.2B	$10.5B	$11.7B	$13.0B
+ Depreciation	$3.4B	$3.6B	$4.1B	$4.5B	$4.9B
- Capex	$4.4B	$4.4B	$4.6B	$4.7B	$4.5B
- Δ NWC	$11M	$53M	$134M	$112M	$62M
Free Cash Flow	$7.7B	$8.4B	$9.8B	$11.4B	$13.3B
Discount Factor	0.930	0.804	0.696	0.602	0.484
Present Value	$7.1B	$6.8B	$6.8B	$6.9B	$6.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$13.3B

Terminal Growth Rate2.25%

WACC7.53%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$257.4B

PV of Terminal Value$124.5B

Exit Multiple Method

Year 10 EBITDA$21.6B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$388.9B

PV of Terminal Value$188.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$68.0B

PV of Terminal Value$124.5B

Enterprise Value$192.5B

(-) Net Debt$26.4B

Equity Value$166.1B

Shares Outstanding849M

Price per Share$195.69

Exit Multiple Method

PV of Projected FCFs$68.0B

PV of Terminal Value$188.1B

Enterprise Value$256.2B

(-) Net Debt$26.4B

Equity Value$229.8B

Shares Outstanding849M

Price per Share$270.67

Pure Model Fair Value

$233.18

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
5.53%	$299.54	$314.43	$333.86	$360.26	$398.25
6.53%	$254.63	$263.40	$274.22	$287.90	$305.74
7.53%	$220.90	$226.51	$233.18	$241.24	$251.19
8.53%	$194.16	$197.95	$202.35	$207.51	$213.65
9.53%	$172.18	$174.86	$177.90	$181.39	$185.44

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$184.72

61.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.36

Base Case

$233.18

103.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.09

Bull Case

$289.59

153.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.92

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.58%

Year 3 Revenue Growth2.62%

Year 5 Revenue Growth6.09%

Year 7 Revenue Growth4.55%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin12.46%

Terminal EBIT Margin13.00%

Tax Rate22.22%

Historical Capex / Rev4.90%

Terminal Capex / Rev3.50%

NWC / Revenue2.16%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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