Should You Buy Altria Stock At $44?

-1.70%
Downside
46.52
Market
45.73
Trefis
MO: Altria Group logo
MO
Altria Group

After a 15% fall in the last twelve months, Altria stock (NYSE: MO) has some room for growth, in our view. Altria stock has declined from $52 in late March 2022 to $44 now. This marks a slight underperformance with the -11% return for the broader S&P500 index. Looking at a slightly longer term, MO stock is down 11% from levels seen in late 2019. This can be attributed to 1. the company’s P/S ratio, which fell 14% to 3.2x trailing revenues from 3.7x in 2019, 2. no change in Altria’s revenue of $25.1 billion, partly offset by 3. its average shares outstanding falling 4% to 1.8 billion, led by $4.3 billion the company spent on share repurchases over this period. Our interactive dashboard, Why Altria Stock Moved, has more details.

Altria sells its tobacco products in the U.S. markets. Revenue is generated from the sale of smokable and smokeless products. Due to supply disruptions, the company’s revenue growth was impacted during the pandemic. Altria sold its wine business for $1.2 billion in 2021, with an increased focus on smoking and smokeless products. Earlier this month, Altria divested itself of e-cigarette maker Juul Labs, recording a loss of about $12.8 billion. The company will continue to focus on smokeless products with its acquisition of NJOY Holdings. It expects to double its smokeless product revenue to $8 billion by 2028. [1]

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With higher inflation, the company saw a decline in cigarette volume last year, a trend expected to continue in the near term. For perspective, the volume of smokable products declined 9.6% y-o-y to 86.4 million sticks in 2022. That said, pricing growth is helping the company offset some of the revenue loss from volume. Total revenue fell 3.5% to $25.1 billion in 2022. Altria has also expanded its operating margins to 29.4% in 2022, vs. 26.3% in 2020. Our Altria Operating Income Comparison dashboard has more details.

Looking at valuation, we find that MO stock has room for growth. At its current level of $44, it is trading at 3.2x its TTM revenues, aligning with its last five-year average. Our Altria (MO) Valuation Ratios Comparison has more details. We estimate Altria’s Valuation to be $50 per share, about 14% above the current market price, and represents a 3.6x P/S multiple based on TTM revenues. Given the expansion of its operating margin, we have assigned a slightly higher multiple compared to its historical average. Note that Altria has posted consistent adjusted earnings growth in recent years, and this trend is expected to continue going forward, as well. The company’s outlook of doubling its sales from smokeless products in the next five years also bodes well for its growth.

While MO stock looks like it has more room for growth, it is helpful to see how Altria’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Ecolab vs. Philip Morris.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MO Return -4% -3% -34%
 S&P 500 Return 1% 5% 80%
 Trefis Multi-Strategy Portfolio -2% 5% 232%

[1] Month-to-date and year-to-date as of 3/31/2023
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Altria makes fresh bet on vaping as it tries to move beyond Juul loss, Andrew Edgecliffe-Johnson and Oliver Barnes, Mar 26, 2023, Financial Times []