United Parcel Service
,
Inc
. (
UPS
) has announced buyback plans for $5 billion worth shares. The
company did not provide any timeline for the completion of the new
share repurchase program. However, it will invest approximately
$1.5 billion this year and next on its buyback
plans.
The company repurchased $800 million of shares in 2010 and $2.7
billion in 2011, representing a massive jump. For 2012, UPS expects
its buyback to be level with 2011 and targets repurchasing shares
worth at least $8 billion from 2012 to 2014. The company projected
return on invested capital of at least 25% by 2014 and free cash
flow to exceed 100% of net income each year.
Additionally, UPS raised the cash payment by $2 billion to $5
billion in its $6.8 billion purchase deal for TNT Express. The
rest of the amount will be raised through a $1.8 billion debt
issuance. However, the timeline for the debt maturity is yet to be
disclosed.
We believe that the increased shareholder returns and cash
investment in acquisition deals reflect the company's growing
financial strength.
Despite the challenging economic growth, UPS generated record
top and bottom-line results on an annualized basis. Healthy
performance in the Supply Chain and Freight segment, strong export
volumes in International Package as well as improved margins in
Domestic Package will continue to fuel the company's profitability.
As a result, UPS expects earnings per share to grow 9-15% year over
year to reach another record level this year. Additionally, the
company's increasing freight and general rates could lead to yield
expansion in all its segments, and in turn higher revenue.
Over the long term, UPS plans to invest about $500 million in
new technology and facility expansion in emerging markets including
France, Latin America, Vietnam, China and Korea. We believe the
company's continued investment in technology and network
enhancements, and its integrated sales approachfor future growth
will support its industry-leading margins and provide a competitive
edge over peers like
FedEx Corporation
(
FDX
).
In terms of shareholder returns, United Parcel continues to
return cash in the form of increased dividends and share
repurchases. In February, the company boosted its quarterly
dividend by 9.6% to 57 cents per share for fiscal 2012 from 52
cents last year. On an annualized basis, United Parcel's dividend
equates to $2.28 per share compared with $2.08 a year earlier. The
rise marks a three-fold increase from the introductory dividend of
17 cents per share paid in 2000 and a two-fold hike from the annual
dividend paid in 2004.
We, currently, have a long-term Neutral rating on United Parcel
. For the short term (1-3 months), the stock retains a Zacks #3
Rank (Hold).
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis
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