Ultrapar Participacoes

Ultrapar Participacoes SA earns a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 4% premium over our quantitative fair value estimate of $7.48 per share; however, this estimate should be taken with a pinch of salt due to its high uncertainty rating.

Note: Our written quantitative analysis is largely based on the company's most liquid share class UGPA3, trading on the BVMF, which currently holds a 3-star rating and a price/fair value ratio of 1.01. The subsequent analysis may be less relevant if inter-share-class valuations diverge materially.

The company's valuation metrics bolster our estimated fair value. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. For example, the firm's enterprise value to revenue ratio of 0.3 falls in the bottom 10% compared with peers globally. The prevailing enterprise value/sales ratio is low relative to the long-term earnings power of the business. This benefit contributes to our balanced fair value estimate.

The firm's favorable dividend structure is an additional encouraging factor. Dividends represent a stable form of future cash flows returned to shareholders, reducing the perceived risk of a business. The firm's forward dividend yield of 5.2%, for example, sits in the top 20% compared with global peers. Expected dividend payments over the coming year relative to the current share price are favorable, which further promotes our neutral price/fair value ratio.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is fairly-valued, this outperformance had a negative impact on our valuation estimate.

With its quantitative economic moat rating of none, we do not expect this company to materially outearn its cost of capital in the long run. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.