JAPAY - Universal Corporation: Tobacco Price Tailwinds To Subside

2025-03-05 09:25:22 ET

Summary

• Universal Corporation's recent financial performance has been strong as tobacco crops in Africa have been good, and the company has gained from increased prices.
• Over the longer term, Universal's earnings have headwinds. Leaf tobacco prices should start to moderate, and global tobacco demand is continuing to trend downwards.
• An ongoing embezzlement investigation is delaying UVV's audited financial reporting.
• As I don't expect Universal Corporation's earnings to sustain, I don't believe the valuation to be attractive. I estimate 6% downside to a fair value of $50.8.

Universal Corporation ( UVV ) is a leading provider of leaf tobacco for giant tobacco manufacturers such as Altria Group ( MO ), British American Tobacco ( BTI ), Japan Tobacco ( JAPAF ), and Philip Morris International ( PM ), among others . Universal also provides different ingredients, albeit on a much smaller scale. While Universal’s financials have performed well, I don't expect the performance to sustain due declining tobacco demand and industry dynamics. On top, an ongoing investigation into prior embezzlement of funds is delaying Universal’s audited financial reporting....

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