On Tuesday, JPMorgan analysts downgraded Universal Robina Corporation (URC:PM) (OTC: UVRBY) stock from Neutral to Underweight and significantly reduced the price target to PHP65.00 from the previous PHP110.00. This change comes as the stock experienced a substantial 33% loss over the past 12 months, underperforming the Philippine Stock Exchange Index's (PSEi) slight gain of 1.2% during the same period.
The company's valuation has also decreased from 17 times to 14 times earnings, with the current P/E ratio at 14.99. According to InvestingPro analysis, the stock is currently trading near its 52-week low of $14, suggesting potential value opportunity for investors willing to weather near-term headwinds.
The analysts have placed Universal Robina Corporation on Negative Catalyst Watch, citing a series of potential negative catalysts that they believe have not been fully accounted for in the current stock price. In contrast to the broader market's expectation of a 21% year-over-year increase in fourth-quarter 2024 net income, JPMorgan's revised earnings per share (EPS) estimates for fiscal years 2024 and 2025 are 6% and 10% lower than the consensus, respectively.
InvestingPro data reveals that 2 analysts have recently revised their earnings downwards, though the company maintains a GOOD overall financial health score with strong profitability metrics, including a 27.3% gross profit margin.
The eruption of Mount Kanlaon presents additional uncertainties, particularly affecting the clarity of earnings recovery in the sugar segment. This event, along with the slow recovery of underlying branded consumer foods (BCF) demand in the Philippines, is expected to contribute to the negative trend in EPS revisions as the company heads into 2025. The analysts note that nominal wages in the Philippines are trailing inflation by 22-25%, with limited fiscal support, which may further delay recovery.
Moreover, there is a technical risk associated with the upcoming MSCI rebalancing announcement scheduled for February 12. JPMorgan's equity derivatives team has identified Universal Robina Corporation as a potential candidate for demotion from the MSCI Standard Philippines Index to the Small Caps index, which could influence the stock's performance.
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