UNITED PARCEL SERVICE INC (UPS) stock intrinsic value fair value estimate & owner earnings analysis

United Parcel Service runs the largest integrated air-and-ground parcel network in the United States, plus an international express network and a supply-chain and logistics business (including healthcare logistics, expanded in 2025 with the roughly $2.0 billion of acquisitions led by Andlauer Healthcare). The network of hubs, aircraft, vehicles and unionized drivers has been built over more than a century and is very hard to replicate; that density is the moat. Its weaknesses are equally structural: labor is its biggest cost and is set by a five-year Teamsters contract that expires July 31, 2028, and U.S. package volume has been shrinking since 2022. What is happening now. In 2025 UPS began deliberately cutting the low-margin volume it carried for Amazon (10.6% of 2025 revenue, down from 11.8%). The company reports that this "glide down" and the related network reconfiguration were completed as designed by mid-2026. Along the way it closed daily operations at 93 buildings in 2025, cut about 48,000 operating positions, identified 24 more buildings to close in the first half of 2026, and in the second quarter of 2026 took a $1.1 billion charge for its Driver Choice voluntary buyout of package drivers. Revenue per package is rising fast (up 9.3% in U.S. Domestic in the second quarter of 2026) while daily U.S. volume keeps falling (16.0 million pieces versus 16.6 million a year earlier). Cash flow in the first half of 2026 improved: operating cash flow was $3.08 billion versus $2.67 billion a year earlier, and capital spending fell to $1.72 billion from $2.00 billion. How we measure earnings. We start from reported operating cash flow and remove working-capital swings, stock-based pay and the capital spending needed to keep the network as it is. On that basis owner earnings were $6.25, $6.96 and $6.61 per share in 2023, 2024 and 2025. We use those three years because they are the only ones under today's labor contract and after the pandemic surge (2021-2022 reached $12.91 and $9.50 and describe a different market). 2017 is excluded everywhere because of a one-time $7.8 billion pension pre-funding contribution. UPS's pension contributions (about $1.3 billion expected for 2026) are paid in cash each year and are already charged in these figures, so the pension shortfall is not subtracted again. How debt is now handled, and why the values changed. Our previous estimate valued the owners' cash after interest and then never subtracted what UPS owes, which silently assumed its roughly $24 billion of borrowings would roll over forever on today's terms. We now value the business before its lenders are paid and then subtract the debt. Adding interest back (about $990 million paid in 2025) lifts the yearly cash the business produces to a middle figure of $7.78 per share (2023-2025: $7.13, $7.95, $7.78). Against that we subtract net debt of about $19.9 billion, or $23.42 per share: $24.5 billion of notes, debentures and finance leases at June 30, 2026, reduced by about $1.9 billion because most of it is long fixed-rate debt with an average coupon near 4.6% (large issues run to 2047-2065, including 6.20% notes due 2038 and 5.30% to 6.05% notes due 2050-2065) and costs less than our 6% yardstick; less $2.65 billion of the $4.65 billion cash balance beyond what we assume the business keeps to operate; plus a small minority interest. Only $500 million of notes mature in 2026 and $1.0 billion in 2027, UPS reports meeting all its debt covenants, and interest of about $1 billion a year is covered more than four times even in our cautious case, so refinancing is not a live risk. This change, together with the Driver Choice cost that was not known before, is the main reason every case is lower than our previous estimate. Growth check. The before-interest cash stream fell 2.2% in 2025 (owner earnings per share fell 5.0%). Our middle case starts 2026 slightly lower, down 2.5%, and also charges the full $1.1 billion driver buyout as a one-time cost in that year. We do not credit the roughly $3 billion of 2026 savings management targets as growth, because it is offsetting revenue that has left. Cautious case ($66 per share). 2026 and 2027 earnings sit 10% below the 2023-2025 level as volume keeps falling faster than pricing and closures can offset, plus the $1.1 billion buyout cost; the 2028 Teamsters renewal brings another cost step of about 10% that UPS cannot price back, as the 2023 contract did; earnings then stay flat in dollars for the rest of the decade and, reflecting four straight years of falling U.S. volume and Amazon's own growing delivery network, shrink 2% a year afterwards. The business is worth about $76.2 billion ($89.55 per share); it owes about $19.9 billion ($23.42); the difference is about $56.3 billion, or $66.13 per share. Middle case ($109 per share). 2026 and 2027 at 2.5% below the 2023-2025 level plus the buyout cost; a 5% setback when the labor contract is renewed in 2028; then 2% a year growth through 2035, well below the roughly 5% a year owner earnings per share grew from 2016 to the 2023-2025 level and supported by UPS's long record of annual general rate increases that have outrun its cost inflation; after 2035 the network is assumed to keep earning that level without further growth. The business is worth about $112.5 billion ($132.20 per share); it owes about $19.9 billion ($23.42); the difference is about $92.6 billion, or $108.78 per share. Optimistic case ($137 per share). The completed glide down and building closures hold 2026 at the 2023-2025 level (before the buyout cost), and the full-year effect of the already-executed cost program lifts 2027 5% higher; the 2028 contract costs 3%; demonstrated pricing power then grows earnings 4% a year through 2035, still below the long-run record, and the level is held flat thereafter. The business is worth about $136.4 billion ($160.27 per share); it owes about $19.9 billion ($23.42); the difference is about $116.5 billion, or $136.85 per share. What was left out. We did not credit a recovery in U.S. package volume, new share gains from healthcare or small-business customers beyond what is already in the numbers, the lower 2026 capital budget (about $3.0 billion, below depreciation, which may not be sustainable), or management's non-GAAP profit targets. The company pays about $5.4 billion a year in dividends, close to all of its owner earnings, so there is little cushion if the cautious case plays out. Margin-of-safety price. UPS is a durable but labor-exposed and moderately cyclical business with meaningful debt, so the estimate calls for a wide cushion below the middle value: the margin-of-safety price is about $74 per share, roughly 32% below it and only modestly above the cautious case. From that price, a move back toward the middle value within about two years plus a dividend of more than $6 a share implies a return at or above the target, while the cautious case sits modestly below it. What would make this wrong: a 2028 labor contract materially costlier than the 2023 one, or U.S. volume losses accelerating faster than rate increases can offset. One item could not be fully pinned down from the filings: how much of the $1.1 billion driver buyout was paid before June 30, 2026. We charged all of it against 2026 cash, which slightly understates value if part was already paid out of the cash balance we counted.