FIN 419 REAL CLIENT MANAGED PORTFOLIO SPRING 2012

FIN 419: REAL CLIENT MANAGED PORTFOLIO, SPRING 2012 UNITED PARCEL SERVICES, INC NYSE: UPS TUESDAY 10 TH APRIL 2012 NURUL ALAM RAFI FRANK DAMIAN MIKE OLLMANN AMIN RIZWAN

INTRODUCTION Founded 1907 Employees 398, 300 Market Capitalization $76. 8 bn April 9 th 2012 Closing Price $79. 19 52 Week Range $60. 74 - $81. 79 SCREENING FIGURES Trailing P/E 20. 88 Forward P/E 14. 45 PEG 1. 28 Graham Approach (20. 88 -8. 5)/2 = 6. 19% Greenblatt Approach EBIT/Total Assets 6. 124 mil/19. 238 mil = 31. 8% EBIT/Enterprise Value 6. 124 mil/83. 75 = 7. 3% Total: 39. 1% GICS: Air Freight & Logistics (203010)

STOCK MARKET ANALYSIS Source: http: //finance. yahoo. com/q/bc? t=my&s=UPS&l=on&z=l&q=l&c=&c=%5 EGSPC

TECHNICAL ANALYSIS Source: http: //finance. yahoo. com/q/ta? s=UPS&t=2 y&l=on&z=l&q=l&p=m 20%2 Cm 200&a=&c=

THE BUSINESS UPS is a package delivery and supply chain management company that operates globally. The Company delivers packages each business day for 1. 1 million shipping customers to 7. 7 million consignees in over 220 countries and territories. During the year ended December 31, 2011, UPS delivered an average of 15. 8 million pieces per day worldwide, or a total of 4. 01 billion packages. Total revenue in 2011 was $53. 1 billion. It serves the global market for logistics services, which include transportation, distribution, forwarding, ground, ocean and air freight, brokerage and financing. It operates in three segments: U. S. Domestic Package, International Package and Supply Chain & Freight. In February 2012, it acquired Kiala S. A. In February 2011, the Company announced the expansion of its UPS Express Freight service into Israel and Slovakia. In December 2011, it acquired Pieffe Group, an Italian pharmaceutical logistics company. Source: 2011 UPS 10 -K, p. 1 -3

2008 2009 2010 2011 US Domestic 61% 62% 60% International 22% 21% 22% 23% Supply Chain 17% 18% 17% U. S. 75% 76% 74% International 25% 24% 26% Revenue by Business Area Revenue by Geography Source: 2008, 2009, 2010, 2011 UPS Annual Reports

RECENT DEVELOPMENTS March 19 th 2012 – UPS buy-out Dutch logistics company TNT Express N. V. (AMS: TNTE) for 5. 16 bn ($6. 77 bn). Offered a 54% premium (9. 50 Euros) per share for TNT. MANAGEMENT THOUGHTS Trade across borders is predicted to grow at least twice as much as U. S. and global domestic production Expect international growth and expansion in global trade to be a catalyst for UPS's growth Source: UPS Investor Relations, http: //www. investors. ups. com/phoenix. zhtml? c=62900&p=irol-news. Article&ID=1673750&highlight= 2011 UPS Annual Report, p. 24.

MAJOR COMPETITORS • Major Players • UPS and Fed. Ex are the largest package-delivery firm and express delivery firm respectively • Deutsche Post handles mail delivery in Germany, and international freight through its DHL Unit • TNT handles international express and mail services, and has a high likelihood of being acquired by UPS Source: http: //clients. ibisworld. com/globalindustry/keycompetitors. aspx? indid=1660

MACROECONOMIC ANALYSIS • Concerns with Europe and high gas prices suppressing future growth – Climbing unemployment in Europe • Rising labor costs in developing markets • Slowdown in emerging markets, such as China, reflects a weakening in demand

WORLD TRADE GROWTH • 18% increase in manufactured goods exports in 2010. – 30% growth in Asian markets. • U. S. , China, and Germany accounted for 1/3 of world merchandise trade in 2010. • USA pass three free trade agreements with South Korea, Columbia and Panama in 2011. • Majority of trade flows between regions. – 65% of EU merch. traded between EU countries. Source: WTO International Trade Statistics 2011

INDUSTRY ANALYSIS • Major Market Segmentation • Over half goes to business services at 54%, with retail and wholesale at 28%, Households at 10%, and other for the remaining 8% Source: http: //clients. ibisworld. com/globalindustry/segmentation. aspx? indid=1660

INDUSTRY ANALYSIS: INDUSTRY COST STRUCTURE White outs • Purchases • Fuel represents the largest portion • Combatted with hedges and fuel surcharges • Wages • Labor intensive industry • Worse for smaller couriers Source: http: //clients. ibisworld. com/globalindustry/segmentation. aspx? indid=1660

INDUSTRY ANALYSIS: GEOGRAPHIC SPREAD White Out • North America • Focus on increased efficiencies and cost reduction • Asia-Pacific • Continual development of distribution networks and expansion Source: http: //clients. ibisworld. com/globalindustry/segmentation. aspx? indid=1660

INDUSTRY ANALYSIS: MARKET DRIVERS • GDP Growth & Inflation – Determines level of disposable income and consumer confidence, affecting the demand for courier services • World Crude Oil Prices – Direct impact on profitability and growth • Telecommunication Services/Internet Connections – Increase in online shopping and cross-border transactions

INDUSTRY OUTLOOK • After the market decline in 2008, the demand for courier services has recovered and is expected to continuously increase as the demand for express JIT delivery also increases Source: http: //clients. ibisworld. com/globalindustry/outlook. aspx? indid=1660

PORTERS FIVE FORCES • Threat of New Entrants (Medium) – Low barriers for smaller markets, however as fuel costs & labor rates rise they will struggle to achieve economies of scale • Threat of Substitutes (Medium) – Many small couriers – Hard to match UPS’ large scale efficiency • Power of Suppliers (High) – Fuel is necessary for almost all operations • Power of Buyers (Low-Medium) – Few firms can rival the scale & efficiency of UPS or Fed. Ex – No choice for retail consumers • Rivalry (High) – Small Firms, Gov’t Postal Services, other international couriers

OWNERSHIP Holder Shares % Outstanding Value ($) VANGUARD GROUP, INC. (THE) 33, 972, 426 4. 69 2, 486, 441, 858 STATE STREET CORPORATION 31, 223, 019 4. 31 2, 285, 212, 760 Capital Research Global Investors 30, 748, 100 4. 25 2, 250, 453, 439 Black. Rock Institutional Trust Company, N. A. 22, 572, 993 3. 12 1, 652, 117, 357 PRICE (T. ROWE) ASSOCIATES INC 22, 128, 173 3. 06 1, 619, 560, 981 WELLINGTON MANAGEMENT COMPANY, LLP 16, 180, 092 2. 24 1, 184, 220, 933 FMR LLC 15, 157, 555 2. 09 1, 109, 381, 450 BANK OF AMERICA CORPORATION 14, 987, 508 2. 07 1, 096, 935, 710 Bank of New York Mellon Corporation 11, 696, 241 1. 62 856, 047, 878 MASSACHUSETTS FINANCIAL SERVICES CO - OTHER 10, 135, 755 1. 40 741, 835, 908 • 69% of shares owned by institutional investors Source: Yahoo Finance, reported December 31 st 2011

FINANCIAL ANALYSIS

PUBLIC COMPARABLE ANALYSIS Fed. Ex Corporation (NYSE: FDX) - International courier - UPS's largest and most direct competitor JB Hunt Transport Services Inc (Nasdaq: JBHT) - One of the largest transportation logistics companies in the US - Smaller sized competitor (UPS 10 times bigger market cap) - Focuses mainly on ground transportation with their fleet of over 4, 500 contractor trucks Value P/E $ 79. 18 33% EV/EBITDA $ 76. 47 33% EV/Revenue $ 75. 95 33% Final Value $ 76. 43

DCF VALUATION

FINAL RECOMMENDATION Current Stock Price (09/04/2012) $79. 19 Public Comp Value $76. 43 DCF Value $76. 78 RECOMMENDATION Watchlist