The stock price of Altria (NYSE: MO) has risen around 15% in a month, primarily due to a better than anticipated quarterly performance driven by growth in its oral tobacco products. Looking at a slightly longer period, Altria has seen its stock rise nearly 50% from levels of $38 in early 2022 to $56 now. This can be attributed to:
- a 9% rise in the company’s adjusted earnings from $4.62 in 2021 to $5.02 now; and,
- a 37% rise in the company’s trailing P/E ratio from 8x to 11x over this period.
Let’s dive deeper into these factors. Separately, look at What’s Happening With HIMS Stock?
What Drove Altria’s Earnings Growth?
Altria sells its tobacco products in the U.S. markets. It sold its wine business for $1.2 billion in 2021, with an increased focus on smoking and smokeless products. With higher inflation, the company is seeing a decline in cigarette volume lately. For perspective, the volume of smokeable products declined 25% from 93.8 billion sticks in 2021 to 70.1 billion sticks in the last twelve months. This has weighed on Altria’s revenues, which have declined 4% from $21.1 billion to $20.3 billion over the same period. The reason the revenue decline was much lower than volume is the strong pricing growth in recent years. Altria is also benefiting from its relatively new smoke-free products, including NJOY and on! Separately, read about a company benefiting from a shortage of weight loss drugs in What’s Happening With HIMS stock.
Although Altria has seen its revenue decline in recent years, its operating margin has improved from 54.8% in 2021 to 56.4% now. Also, the company spent nearly $8 billion on share repurchases since 2021, resulting in a 6% fall in total shares. Margin expansion and fewer shares, partly offset by a slight decline in revenue, resulted in earnings of $5.02 on a per share and adjusted basis in the last twelve months, versus $4.62 in 2021.
What’s Behind Rising Valuation Multiple?
Investors have rewarded Altria stock lately as the decline in volume of cigarettes was largely being offset by pricing gains. Also, the rise in oral tobacco products sales have been positive for the company. Now, the higher inflation environment has pushed some of the customers to cheaper brands. For perspective, Marlboro retail share of the total cigarettes has declined from 42.9% in 2021 to 41.9% now. But, with the U.S. Fed focused on taming inflation and rate cuts likely boding well for consumer sentiment, the volume decline is expected to moderate over the coming years.
Furthermore, what went well for MO stock was the company’s decision to reduce its stake in Anheuser-Busch InBev and use the proceeds to buy back its own shares, which it did, earlier this year.
Does MO Stock Have Any Room For Growth?
The increase in MO stock lately has been far from consistent, although annual returns were considerably less volatile than the S&P 500. Returns for the stock were 24% in 2021, 4% in 2022, -4% in 2023, and 48% so far in 2024. Similarly, the Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it 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 around rate cuts and multiple wars, 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 seems fully priced. We estimate Altria’s Valuation to be $48 per share, nearly 15% below its current price of around $56. Our forecast is based on a 9x P/E multiple for MO and expected earnings of $5.13 on a per-share and adjusted basis for the full year 2024. The 9x figure aligns with the stock’s average forward P/E ratio over the last three years.
Furthermore, investors should take into account the risks as well. There are three factors – tariffs, deportations, and low taxes – that would make it difficult for the Fed to fight an inflation spike in coming months. Our take on Could S&P Crash More Than 40%? has more details on the above factors. And if the U.S. Fed were to pause the rate cuts, amid higher inflation, it wouldn’t bode well for the consumer sentiment, weighing on Altria’s performance.
While MO stock looks like it is fully valued, 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.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates