By Rick Aristotle Munarriz (TMF Edible)

( January 19, 2000 ) -- Why UPS? Isn't that what parents tell their young boys when their erratic S-shaped wizz misses the potty? I know, I know, I started out with a joke so lame that even United Parcel Service couldn't deliver it. But I think there is something else that UPS might fumble with -- capital appreciation.

Is UPS worth $80 billion? With fulfillment costs rising recently (I mean, have you been to the gas pump lately), this is not exactly a glamorous growth sector. UPS is expected to grow earnings by just 14% this new year.

For sector perspective, let's consider Airborne Freight and FDX. Neither is a perfect match. The companies behind Airborne Express and Federal Express provide fast delivery of small parcels for business customers while UPS specializes in larger packages in the private sector. Well, FedEx is more than that, but I'll cover that later. Unfortunately, the United States Postal Service, the best match to UPS right now, is privately held.

But let's roll with what we have here. UPS. Airborne. FedEx. The numbers are surprisingly similar. Estimated Y2K earnings per share? $2.30, $2.24, and $2.54, respectively. Earnings growth? 14%, 9%, and 16%, respectively. On a rudimentary basis one would expect to find UPS trading at a price that is somewhat higher than Airborne but a lot lower than FDX.

Not so. At 29 times year-ahead estimates, UPS is fetching three times the Airborne earnings multiple and over 60% more than the Federal Express multiple. Something is very, very wrong here.

Why is UPS trading at such lofty valuations? E-commerce! Plain and simple, investors are banking on the growth of online transactions.

You probably remember how Toys "R" Us <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> became the Grinch this holiday season when it failed to deliver thousands of orders in time for Christmas. The press blasted the company. Lost in the media circus was any mention of the company that handles the company's shipping: UPS.

Now, please, I'm not accusing UPS of botching the job here. I'm fairly sure that the blame for the January Pikachus falls squarely on the lap of Toys "R" Us. However, it is euphorically troubling to see a company like UPS get the Teflon treatment in matters like these. The Stepford Wise? Anyone?

If this move is justified, if a company can tack on tens of billions in valuation in the aftermarket simply based on the Internet delivery promise, come in closer for some hot stock tips. Closer. Closer.

Foam peanuts. Bubble wrap. Corrugated paper. Piggyback the piggyback! Load up on Imperial Chemical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICI)") else Response.Write("(NYSE: ICI)") end if %>, International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %>, and Sealed Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEE)") else Response.Write("(NYSE: SEE)") end if %>.

You see, what's the difference? The e-ordered goods need to be packaged just as badly as they need to get shipped. There are a lot of players who will benefit -- but as is the case with UPS, e-commerce will be barely incremental to the existing business that e-commerce won't pilfer away in the first place.

But UPS is not a commodity, you say? Well, we will see. It's not just the post office anymore. FedEx's RPS freight division will begin residential delivery in two months. More importantly, from a brand perspective, it appears as if FedEx is going to get rid of the drab RPS name and slap on the more recognizable Federal Express moniker.

In closing, I can try to stick to a theme here and close out with a joke as lame-o as my opening shot. I can say that U-P-S is going D-O-W-N. I can try to apply my "erratic wizz" theory to UPS management. I can do that -- and more -- but it would snap my credibility faster than a sheet of bubble wrap at a clogger's convention. The truth is that UPS is a great company. It is. It has the difficult task of having to compete against a subsidized government service agency (more or less) and UPS has thrived. However, my admiration for the company falls short when we consider the stock. It is overvalued in its own right as well as relative to its peers. It is not being priced to account for any potential pitfalls.

Pitfalls? Well, do you think Federal Express is NOT going to eat away at the UPS business come March? And, seriously, if legislation ever began to tax interstate commerce don't you think that e-commerce might slowfoot it a bit? Competition and legal uncertainties might keep many stocks in check, but not UPS. That Teflon is mighty thick. Unfortunately, I see the cracks.

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