What’s Next For Altria Stock After A 15% Fall In A Year?

Altria (NYSE: MO) reported its Q4 results earlier this month, with revenues missing and earnings marginally above the street estimates. The company reported adjusted revenue of $5.02 billion and adjusted profit of $1.18 per share compared to the consensus estimates of $5.09 billion and $1.17, respectively. The company saw its cigarette volume decline in high single-digits during the quarter, a trend that may continue in the near term, amid rising prices in the inflationary environment. 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 35% for the S&P 500 over this roughly three-year period. Overall, the performance of MO stock with respect to the index has been quite volatile. Returns for the stock were 16% in 2021, -4% in 2022, and -12% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 $46 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 $5.12 on a per-share and adjusted basis for the full year 2024. The 9x P/E ratio aligns with the stock’s average over the last four years.

Altria’s revenue of $5.02 billion (net of excise taxes) in Q4 was down 1.2% y-o-y, primarily due to lower volume for both smokable and smokeless products. While smokable products volume declined 7.5% y-o-y, oral tobacco products volume declined 2%. The company attributed this decline to competition from illicit e-vapor products and pressure on disposable income amid a high inflationary environment. Altria’s adjusted operating income margin grew 60 bps to 59.0% for smokable products and it rose by 180 bps to 63.1% for oral tobacco products in Q4. Lower revenues and margin expansion resulted in earnings of $1.18 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 75,000 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. Altria has guided its earnings to be in the range of $5.00 and $5.15 in 2024. MO is trading at 8x forward earnings compared to the last three-year average of 9x, implying that it has some room for growth, if the valuation multiple expands toward its historical average.

While MO stock has some 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.

[1] Returns as of 2/23/2024
[2] Cumulative total returns since the end of 2016

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