Altria (NYSE: MO) reported its Q3 results last month, with revenues and earnings missing the street estimates, and we believe that MO stock has little room for growth, as discussed below. The company reported revenue of $5.3 billion and adjusted profit of $1.28 per share compared to the consensus estimates of $5.4 billion in sales and $1.29 earnings per share. In this note, we discuss Altria’s stock performance, key takeaways from its recent results, and valuation.
MO stock has seen little change, moving slightly from levels of $40 in early January 2021 to around $40 now, vs. an increase of about 15% for the S&P 500 over this roughly 3-year period. Overall, the performance of MO stock with respect to the index has been lackluster. Returns for the stock were 16% in 2021, -4% in 2022, and -12% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 13% in 2023 (YTD) – indicating that MO underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector, including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could MO face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, MO stock looks like it has little room for growth. We estimate Altria’s Valuation to be $45 per share, reflecting about 10% upside from its current price of $41. Our forecast is based on a 9x P/E multiple for MO and expected earnings of $4.93 on a per-share and adjusted basis for the full year 2023. The 9x P/E ratio aligns with the stock’s last three-year average. The company narrowed its earnings outlook to be in the range of $4.91 and $4.98 (vs. the $4.89 and $5.03 range earlier).
Altria’s revenue of $5.3 billion in Q3 was down 2.5% y-o-y, primarily due to lower volume for both – smokable and smokeless products. The company attributed this decline to competition from illicit e-vapor products. Altria’s adjusted operating income margin grew 70 bps to 59.6% in Q3. Lower revenues and margin expansion resulted in earnings of $1.28 per share, reflecting no change from the prior-year quarter.
Looking forward, Altria will likely benefit from its NJOY acquisition. NJOY products include e-cigarettes, vape pens, and pod systems. The company plans to expand the distribution of NJOY’s popular pod – ACE – to 70,000 stores by the end of this year. The company will likely continue to see a decline in cigarette volume, and it can’t rely on pricing growth in the long run, given that consumers may switch to a cheaper brand, especially if there is a recession, which could weigh on overall consumer spending. MO is trading at 8x forward earnings compared to the last three-year average of 9x, implying that it has little room for growth even if the valuation multiple expanded toward its historical average.
While MO stock has little 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.
|S&P 500 Return||4%||13%||94%|
|Trefis Reinforced Value Portfolio||2%||20%||518%|
 Month-to-date and year-to-date as of 11/10/2023
 Cumulative total returns since the end of 2016