Today, Universal Corp (UVV, Financial) experienced a notable daily loss of 13.97%, adding to a three-month decline of 5.73%. Despite these figures, the company's Earnings Per Share (EPS) stands at 5.31. This analysis seeks to unravel whether Universal Corp (UVV) is significantly undervalued, as suggested by its current market performance and intrinsic valuation metrics.
Company Overview
Universal Corp is a leading global supplier of leaf tobacco. The company does not manufacture consumer tobacco products but plays a crucial role in the supply chain by procuring, processing, and selling leaf tobacco primarily to manufacturers of consumer tobacco products. Its operations are divided into Tobacco Operations and Ingredients Operations, with the majority of its revenue being generated from the Tobacco Operations segment predominantly in the United States. Currently, Universal's stock price stands at $45.84, with a market capitalization of $1.10 billion, significantly lower than its GF Value of $66.69, indicating potential undervaluation.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the true intrinsic value of a stock. It integrates historical trading multiples such as PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow, with a GuruFocus adjustment factor reflecting past returns and growth, and future business performance estimates. This valuation suggests that Universal Corp's fair market value should be around $66.69 per share.
Given that the current price is $45.84, Universal Corp is categorized as significantly undervalued by our metrics. This discrepancy suggests a potential for higher future returns, contingent on the company maintaining its business trajectory relative to our estimated GF Value.
Financial Strength and Risks
Assessing a company's financial strength is vital to understanding its risk profile. Universal's cash-to-debt ratio stands at 0.07, which is lower than 83.67% of its peers in the Tobacco Products industry. This metric, alongside a fair overall financial strength rating of 6 out of 10, suggests that while Universal is not at high risk of financial distress, its leverage is relatively high compared to its industry peers.
Profitability and Growth Prospects
Universal has demonstrated consistent profitability, with an operating margin of 7.85% that outperforms 50.98% of its industry counterparts. The company's 3-year average annual revenue growth rate of 10.6% further reinforces its robust market position and growth potential. These factors collectively contribute to a fair profitability rank.
Moreover, the company's Return on Invested Capital (ROIC) of 7.75 slightly undercuts its Weighted Average Cost of Capital (WACC) of 7.83, indicating a need for improved capital efficiency. However, these figures are closely aligned, suggesting that Universal is managing its capital investments adequately relative to its cost of capital.
Conclusion
In conclusion, despite recent market downturns, Universal Corp (UVV, Financial) appears significantly undervalued based on our GF Value. With fair financial health, consistent profitability, and a solid track record of growth, Universal presents a potentially lucrative opportunity for value investors. For a deeper understanding of Universal's financial health and market prospects, prospective investors should consider exploring its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
