Special Delivery

By Daniel Kadlec

A few years back, when we still had real winters in New York, the snow was so deep one night that I left my car at the train station and walked home. No cabs were running. Not a snowplow in sight. Even the mailman had bagged it. The street was perfectly silent--but for a familiar boxy, brown truck rumbling my way sporting the initials U P S. There, I recall thinking, is a stock to own--if only UPS shares traded publicly.

Last year, when I made my first online purchase, the UPS yen resurfaced. By then the Internet had emerged as a retailing force. I even recommend buying shares of FDX Corp., parent of delivery company Federal Express, as an indirect play on the growth of online shopping. I still believe FedEx is a great stock. But it was the UPS man who had delivered my package. If only.

No more wishing: last week UPS, which is based in Atlanta, said it will soon sell the public a 10% stake in what could be the biggest initial public offering ever ($4 billion or so) and the hottest in recent memory. CEO James Kelly says it's all about flexibility. Publicly traded shares will give him a currency to make acquisitions and compete better.

O.K. That stuff matters. But this IPO is really about mining riches on the Internet. UPS has been around since 1907, and management had always staunchly resisted selling shares to the public and having to deal with impatient shareholders and arrogant Wall Streeters. So why go public now? The company doesn't need money; it has a $3.4 billion cash reserve.

I'm betting the UPS brass doubled over in envy as they watched shares of rival FedEx nearly triple in a seven-month stretch, ignited by explosive e-commerce activity last holiday season. Kelly calls the market's valuation of Internet stocks "speculative" and says his planned IPO "is not the result of what any other company is doing." Still, Zona Research estimates 55% of the goods bought online during the holidays were delivered by UPS. FedEx got a mere 10%. UPS management must have imagined the possibilities. (The U.S. Postal Service, by the way, delivered 32% of e-packages, a strong showing that suggests it might do well divorced from Uncle Sam.)

Should you buy UPS when it goes public? Big Brown is a great company that's been growing earnings steadily through cost cutting and world expansion. It's getting an incremental boost from the Internet. In the second quarter, reported last Thursday, its income jumped 28%, and the company forecast "a significant increase" in this holiday season's e-commerce. Last year UPS delivered 3 billion packages in 200 countries, earning $1.7 billion on sales of $24.8 billion--way bigger numbers than FedEx's. And there's no place in the U.S. that UPS doesn't go. If e-commerce grows 30% a year, as some predict, the impact on earnings will be dramatic.

What may matter most, though, is where the stock settles after the inevitable post-IPO run-up. I'd love to own UPS as a back-door Internet play, much like profitable equipment makers Lucent and IBM. But if Netniks drive the stock too high too fast, FDX, sliding lately, may be the better stock. Attention from the UPS offering and a repeat breakout holiday season for online shopping could send it on another run.

See time.com for more on UPS. Dan appears on CNNfn Tuesdays at 12:45 p.m. E.T. and BNN radio Mondays at 5:40 p.m. E.T.