Altria Stock: What’s Next After a 15% Fall?

Altria (NYSE: MO) recently reported its Q4 results, which showed a slight miss on revenues and earnings slightly above street estimates. Despite this, the company’s stock has remained relatively stable over the past year, with little change from $40 in early January 2021 to around $40 now. This is in contrast to the S&P 500, which has seen an increase of about 35% over the same period. MO stock has experienced volatile performance, with returns of 16% in 2021, -4% in 2022, and -12% in 2023, compared to returns of 27%, -19%, and 24% for the S&P 500 during those years, respectively.

Beating the S&P 500 consistently has been challenging for many stocks, including heavyweights in the Consumer Staples sector like WMT, PG, and COST, as well as megacap stars like GOOG, TSLA, and MSFT. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period, providing better returns with less risk.

Looking ahead, Altria’s stock performance may be influenced by the uncertain macroeconomic environment, characterized by high oil prices and elevated interest rates. From a valuation perspective, MO stock appears to have limited room for growth, with an estimated valuation of $46 per share, reflecting about 10% upside from its current price of $41. This valuation is based on a 9x P/E multiple for MO and expected earnings of $5.12 per share for the full year 2024, aligning with the stock’s average P/E ratio over the last four years.

In Q4, Altria’s revenue of $5.02 billion (net of excise taxes) was down 1.2% year-over-year, primarily due to lower volume for both smokable and smokeless products. Smokable products volume declined 7.5% year-over-year, while oral tobacco products volume declined 2%. The company attributed this decline to competition from illicit e-vapor products and pressure on disposable income in a high inflationary environment. Despite the revenue decline, Altria’s adjusted operating income margin improved for both smokable and oral tobacco products.

Looking forward, Altria’s acquisition of NJOY is expected to benefit the company. NJOY’s products include e-cigarettes, vape pens, and pod systems, with plans to expand the distribution of NJOY’s popular pod – ACE – to 75,000 stores by the end of 2024. However, Altria may continue to see a decline in cigarette volume and cannot rely on pricing growth in the long run, especially in a recessionary environment where consumers may switch to cheaper brands.

Altria has guided its earnings to be in the range of $5.00 and $5.15 in 2024. The stock is currently trading at 8x forward earnings compared to the last three-year average of 9x, suggesting that there is some room for growth if the valuation multiple expands toward its historical average.

In conclusion, while Altria’s stock has some potential for growth, investors should also consider how the company’s peers are performing on key metrics. Comparisons with peer companies across industries can provide valuable insights into Altria’s position in the market and its growth prospects.