This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

UPS Deal Will Deliver Earnings Boost: Analysts

Stocks in this article: UPS FDX

At the current deal price, UPS is expected to be able to pay for TNT Express with two years of its free cash flow, making it an earnings positive deal even if divestitures, regulatory concerns and integration costs are significant.

Sterne Agee analysts expect UPS to earn $3.2 billion in free cash flow this year and $3.8 billion in fiscal 2013. Synergies with UPS's worldwide fleet will make the deal earnings positive, according to Jeff Kauffman of Sterne Agee, who calculates that the move may be worth up to 13 euros a share for UPS.

Benefits of a TNT Express acquisition wouldn't have been as present for UPS's main U.S. rival FedEx Corporation (FDX), according to Kauffman, signaling that a long-rumored rival offer may not come. Meanwhile, FedEx's cash earnings abilities would make a higher bid hard to fund.

"We only calculate FedEx generating FCF after dividends of $(150) million and $420 million, implying that if FedEx responded to an E9.50 bid by UPS with a bid over E10, such a transaction would take as much as 7+ years of Free Cash Flow to pay down," noted Kauffman. He rates UPS shares a "buy" with a $110 price target and also gives FedEx shares a "buy" rating.

Still, even with an optimistic first response from analysts and investors, significant risks to the deal remain. UPS forecast that the implementation costs of the deal could total $1.3 billion over four years. The company will draw the bulk of its cash on hand and also issue new debt to pay for the deal. Atlanta-based UPS said it would use $3 billion in cash out of a total of $4.27 in cash in short term investments for the deal and issue new debt to pay for the remainder.

Overall, analyst give UPS an average price target of $88.39 a share, according to data compiled by Bloomberg. Eighteen analysts rate shares a "buy," while another 8 give the company a "hold" rating. Those analysts expect UPS to see its revenue climb to $55.9 billion, netting a $4.7 billion profit in 2012 that's expected to grow in 2013. Analysts give FedEx shares a price target of $104.47, according to Bloomberg data.

For more on UPS shares see The #1 recession proof portfolio that will make you richer and the most bought industrial stocks among investment funds.

UPS was advised by UBS (UBS), Morgan Stanley (MS) and Bank of America Merrill Lynch (BAC). Goldman Sachs (GS) and Lazard (LAZ) gave TNT Express advice on its sale.

For more on Goldman and Lazard shares, see 2012 deals hinge on Goldman's idea of fairness and a widening performance gap on Wall Street.

Written by Antoine Gara in New York.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,853.51 +75.36 0.42%
S&P 500 2,074.47 +13.24 0.64%
NASDAQ 4,774.2150 +25.8190 0.54%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs