United Parcel Service (UPS ) may soon bring shareholders a nice surprise package. The world's largest express company, with an AAA credit rating, is rich in cash and profits. So it might look as if its stock, up from 66 in September to 75 on Feb. 15, already reflects these goodies. Not by a long shot, says Stephen Leeb, who heads Leeb Capital Management, which owns shares. He expects the stock to hit 100 in 18 to 24 months because of its "super-growth prospects." Not only does UPS dominate the U.S. market, where it picks up 75% of its revenues, but it's also building up in China and India. The global delivery market is estimated to be worth more than $100 billion a year. In the U.S., explosive growth in Internet retailing is also adding to UPS volume. But the still-uncounted big plus, argues Leeb, will come from Asia, where its competitive edge may even be greater. UPS operates 560 airplanes and 88,000 ground vehicles worldwide. "We can't think of any other company that can benefit as strongly from China, India, and the Internet," Leeb notes. Jim Corridore of Standard & Poor's (MHP ), who rates UPS a four-star buy (five is tops), expects overseas volume and revenues to rise some 20% this year, aided by robust export activity from Asia. Higher oil prices won't crimp operating earnings, he says, because UPS adds fuel surcharges to deliveries. At 19 times Corridore's 2006 profit estimate of $4 a share (vs. 2005's $3.47), the stock is trading at the low end of its price-earnings ratio range of 19 to 30 over the past five years.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial