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Altria (MO) Hits 52-Week High: Time to Cash In or Hold Steady?
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Altria Group, Inc. (MO - Free Report) , a leading player in the tobacco industry, recently reached a 52-week high, sparking significant interest among investors. This milestone raises an important question: should investors lock in their gains now or maintain their positions for potential future upside?
Altria's shares peaked at $50.47 before settling at $49.80 by the end of the trading session on Jul 25, 2024. Driven by its robust fundamentals and attractive dividend payouts, this tobacco giant has outpaced the industry in the past six months.
Shares of this Richmond, VA-based company have surged 22.9% in the past six months compared with the industry’s growth of 21.3%. Altria has also fared better than the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 2.2% and 10.2% in the same time frame.
Image Source: Zacks Investment Research
This is not it. Technical indicators are supportive of Altria’s strong performance. The stock is trading above both its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum. Trading above these averages signals bullish sentiments, often making the stock more attractive to trend-following investors.
Image Source: Zacks Investment Research
The Smoke Behind Success
Altria’s traditional cigarette business has been benefiting from its flagship brand, Marlboro’s continued resilience in the premium cigarette segment. Despite facing challenges, the Marlboro brand continues to dominate the U.S. cigarette market with a 42% retail share in the first quarter of 2024. The brand’s aspirational value and consumer loyalty ensure sustained demand, reinforcing the company’s robust market presence.
Altria’s efforts to strengthen its position in the smoke-free products space remain another driver in the face of declining cigarette volumes. Consumers are increasingly gravitating toward reduced-risk products or are driven by the well-documented health risks associated with traditional cigarette smoking. Tobacco behemoth, Philip Morris International (PM - Free Report) , has also been reinforcing its presence in the smoke-free market with well-known products like IQOS and ZYN.
In response to the evolving market dynamics, Altria has adapted its strategy by introducing various oral tobacco, e-vapor and heated tobacco offerings. The company, through its subsidiary Helix Innovations, holds full global ownership of on!, a widely embraced tobacco-derived nicotine (TDN) pouch product.
on! has been a valuable addition to the company's smoke-free product portfolio, particularly given the growing popularity of oral TDN products in the United States, where they are marketed as low-risk options. Net revenues in the Oral Tobacco Products segment saw a 3.7% increase to $651 million in the first quarter of 2024, with reported shipment volumes of on! up 32% year over year.
Additionally, Altria’s e-vapor product, NJOY, has shown significant early momentum in its commercialization. In the first quarter, NJOY’s distribution expanded to more than 80,000 stores, with plans to reach approximately 100,000 stores by year-end. NJOY’s retail share of consumables grew to 4.3 share points in the quarter, up 0.6 share points sequentially.
Moreover, NJOY's share of devices in the multi-outlet and convenience channel reached 11.5 share points, an increase of 2.4 share points sequentially. This growth in distribution and market share is a positive indicator of NJOY’s potential in the e-vapor market, positioning Altria well for future growth in the smoke-free category.
Altria also enjoys robust pricing power, which has helped the company stay firm and generate profits despite soft cigarette shipment volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.
A Dividend King
Altria is known for its commitment to boosting shareholders’ value through dividends and share buybacks. In its first-quarter earnings release, the company authorized a $2.4-billion increase in its existing $1-billion share repurchase program.
Further, the company paid out dividends of $1.7 billion during the quarter. Altria’s current dividend yield of 7.9% makes it highly attractive to income-focused investors seeking regular and substantial dividend payments. However, its payout ratio of close to 80% raises questions about the long-term sustainability, given the ongoing challenges faced by the company.
Burning Issues
While Altria is making strides in emerging categories like e-vapor and oral tobacco, cigarette still remains its core business at present. Altria continues to derive its major revenue chunk from the Smokeable Products segment, which has not been in its best shape. Accounting for about 88% of the company’s total revenues in the first quarter of 2024, the segment saw a 3.6% decline in its revenues, mainly due to reduced cigarette shipment volumes.
Domestic cigarette shipment volumes tumbled 10% in the quarter due to the industry’s decline rate and retail share losses, which, in turn, resulted from macroeconomic pressure on Adult Tobacco Consumers' disposable income and increased competition from illicit e-vapor products. Altria’s performance remains susceptible to broader market conditions, such as inflationary pressures and changing consumer preferences. These constraints could limit the company’s ability to seek high prices.
The decline in cigarette volumes remains a critical issue for Altria. If Altria fails to offset these declines with substantial growth in new smoke-free categories, it could face prolonged revenue contraction, adversely affecting its financial performance and stock valuation.
Apart from this, Altria faces significant regulatory and legislative risks that could negatively impact its business operations and financial performance. Regulatory actions, such as potential flavor bans or stricter marketing restrictions, could adversely affect the growth of NJOY and other smoke-free products. Furthermore, ongoing litigation risks associated with tobacco products add another layer of uncertainty. The potential for adverse regulatory or legal outcomes could weigh on Altria’s stock price.
Valuation Picture
Altria is currently trading at a premium compared to its industry peers like British American Tobacco p.l.c. (BTI - Free Report) and Japan Tobacco Inc. (JAPAY - Free Report) . Altria’s forward 12-month price-to-sales ratio stands at 4.16, higher than the industry’s ratio of 3.35. This suggests that investors may be paying a high price relative to the company's expected sales growth. Altria’s Value Score of C further underscores these fears.
Image Source: Zacks Investment Research
Analyst Projections: A Closer Look
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has remained stable at $5.11 over the past 30 days, whereas the consensus mark for 2025 EPS has dipped by a penny to $5.28 in the same time frame. However, these projections suggest year-over-year growth of 3.2% and 3.4%, respectively.
While the minor adjustment in the 2025 EPS estimate calls for a vigilant approach, the expected year-over-year growth signifies Altria's solid footing and potential for sustained financial improvement. Investors should consider both the stable near-term outlook and the slight dip in long-term expectations to make prudent decisions.
Image Source: Zacks Investment Research
How to Play Ahead?
Altria maintains a strong position in the U.S. tobacco industry. Its high dividend yield and strategic moves into smoke-free products offer growth potential, yet the declining cigarette business and regulatory risks necessitate careful consideration. Investors should weigh these factors carefully, balancing the attractive income potential against the underlying challenges. All said, those already invested in the stock should consider holding their positions, while potential new investors may benefit from waiting for a more attractive entry point.
Image: Bigstock
Altria (MO) Hits 52-Week High: Time to Cash In or Hold Steady?
Altria Group, Inc. (MO - Free Report) , a leading player in the tobacco industry, recently reached a 52-week high, sparking significant interest among investors. This milestone raises an important question: should investors lock in their gains now or maintain their positions for potential future upside?
Altria's shares peaked at $50.47 before settling at $49.80 by the end of the trading session on Jul 25, 2024. Driven by its robust fundamentals and attractive dividend payouts, this tobacco giant has outpaced the industry in the past six months.
Shares of this Richmond, VA-based company have surged 22.9% in the past six months compared with the industry’s growth of 21.3%. Altria has also fared better than the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 2.2% and 10.2% in the same time frame.
Image Source: Zacks Investment Research
This is not it. Technical indicators are supportive of Altria’s strong performance. The stock is trading above both its 50-day and 200-day moving averages, which are important indicators for gauging market trends and momentum. Trading above these averages signals bullish sentiments, often making the stock more attractive to trend-following investors.
Image Source: Zacks Investment Research
The Smoke Behind Success
Altria’s traditional cigarette business has been benefiting from its flagship brand, Marlboro’s continued resilience in the premium cigarette segment. Despite facing challenges, the Marlboro brand continues to dominate the U.S. cigarette market with a 42% retail share in the first quarter of 2024. The brand’s aspirational value and consumer loyalty ensure sustained demand, reinforcing the company’s robust market presence.
Altria’s efforts to strengthen its position in the smoke-free products space remain another driver in the face of declining cigarette volumes. Consumers are increasingly gravitating toward reduced-risk products or are driven by the well-documented health risks associated with traditional cigarette smoking. Tobacco behemoth, Philip Morris International (PM - Free Report) , has also been reinforcing its presence in the smoke-free market with well-known products like IQOS and ZYN.
In response to the evolving market dynamics, Altria has adapted its strategy by introducing various oral tobacco, e-vapor and heated tobacco offerings. The company, through its subsidiary Helix Innovations, holds full global ownership of on!, a widely embraced tobacco-derived nicotine (TDN) pouch product.
on! has been a valuable addition to the company's smoke-free product portfolio, particularly given the growing popularity of oral TDN products in the United States, where they are marketed as low-risk options. Net revenues in the Oral Tobacco Products segment saw a 3.7% increase to $651 million in the first quarter of 2024, with reported shipment volumes of on! up 32% year over year.
Additionally, Altria’s e-vapor product, NJOY, has shown significant early momentum in its commercialization. In the first quarter, NJOY’s distribution expanded to more than 80,000 stores, with plans to reach approximately 100,000 stores by year-end. NJOY’s retail share of consumables grew to 4.3 share points in the quarter, up 0.6 share points sequentially.
Moreover, NJOY's share of devices in the multi-outlet and convenience channel reached 11.5 share points, an increase of 2.4 share points sequentially. This growth in distribution and market share is a positive indicator of NJOY’s potential in the e-vapor market, positioning Altria well for future growth in the smoke-free category.
Altria also enjoys robust pricing power, which has helped the company stay firm and generate profits despite soft cigarette shipment volumes. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.
A Dividend King
Altria is known for its commitment to boosting shareholders’ value through dividends and share buybacks. In its first-quarter earnings release, the company authorized a $2.4-billion increase in its existing $1-billion share repurchase program.
Further, the company paid out dividends of $1.7 billion during the quarter. Altria’s current dividend yield of 7.9% makes it highly attractive to income-focused investors seeking regular and substantial dividend payments. However, its payout ratio of close to 80% raises questions about the long-term sustainability, given the ongoing challenges faced by the company.
Burning Issues
While Altria is making strides in emerging categories like e-vapor and oral tobacco, cigarette still remains its core business at present. Altria continues to derive its major revenue chunk from the Smokeable Products segment, which has not been in its best shape. Accounting for about 88% of the company’s total revenues in the first quarter of 2024, the segment saw a 3.6% decline in its revenues, mainly due to reduced cigarette shipment volumes.
Domestic cigarette shipment volumes tumbled 10% in the quarter due to the industry’s decline rate and retail share losses, which, in turn, resulted from macroeconomic pressure on Adult Tobacco Consumers' disposable income and increased competition from illicit e-vapor products. Altria’s performance remains susceptible to broader market conditions, such as inflationary pressures and changing consumer preferences. These constraints could limit the company’s ability to seek high prices.
The decline in cigarette volumes remains a critical issue for Altria. If Altria fails to offset these declines with substantial growth in new smoke-free categories, it could face prolonged revenue contraction, adversely affecting its financial performance and stock valuation.
Apart from this, Altria faces significant regulatory and legislative risks that could negatively impact its business operations and financial performance. Regulatory actions, such as potential flavor bans or stricter marketing restrictions, could adversely affect the growth of NJOY and other smoke-free products. Furthermore, ongoing litigation risks associated with tobacco products add another layer of uncertainty. The potential for adverse regulatory or legal outcomes could weigh on Altria’s stock price.
Valuation Picture
Altria is currently trading at a premium compared to its industry peers like British American Tobacco p.l.c. (BTI - Free Report) and Japan Tobacco Inc. (JAPAY - Free Report) . Altria’s forward 12-month price-to-sales ratio stands at 4.16, higher than the industry’s ratio of 3.35. This suggests that investors may be paying a high price relative to the company's expected sales growth. Altria’s Value Score of C further underscores these fears.
Image Source: Zacks Investment Research
Analyst Projections: A Closer Look
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has remained stable at $5.11 over the past 30 days, whereas the consensus mark for 2025 EPS has dipped by a penny to $5.28 in the same time frame. However, these projections suggest year-over-year growth of 3.2% and 3.4%, respectively.
While the minor adjustment in the 2025 EPS estimate calls for a vigilant approach, the expected year-over-year growth signifies Altria's solid footing and potential for sustained financial improvement. Investors should consider both the stable near-term outlook and the slight dip in long-term expectations to make prudent decisions.
Image Source: Zacks Investment Research
How to Play Ahead?
Altria maintains a strong position in the U.S. tobacco industry. Its high dividend yield and strategic moves into smoke-free products offer growth potential, yet the declining cigarette business and regulatory risks necessitate careful consideration. Investors should weigh these factors carefully, balancing the attractive income potential against the underlying challenges. All said, those already invested in the stock should consider holding their positions, while potential new investors may benefit from waiting for a more attractive entry point.
Altria currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.