Key Takeaways

Altria's smoke-free revenue goals face challenges due to the growing illicit e-vapor market and potential regulatory hurdles for NJOY products.
Declining cigarette volumes and limited regulatory support for smoke-free products strain Altria's revenue and margins in both smokable and smoke-free segments.
Strategic investments in smoke-free products and strong financial management support Altria's revenue growth, profitability, and market share in a shifting nicotine landscape.

Catalysts

About Altria Group

Through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States.What are the underlying business or industry changes driving this perspective?

Altria's smoke-free product segment, including NJOY and on!, is threatened by the rapid growth of illicit e-vapor products, which now account for over 60% of the market. This compromises revenue growth as legitimate market share is eroded by these unauthorized competitors.
There is a significant risk that Altria's 2028 smoke-free volume and revenue goals may not be met due to the massive scale of the illicit e-vapor market, which negatively impacts projected earnings growth in smoke-free categories.
The potential exclusion of NJOY ACE products from the market following JUUL's litigation outcome poses a risk to revenue streams and limits the ability to capitalize on FDA-authorized product advantages.
Altria's cigarette volume decline continues, aligning with the trend of adult consumer preferences shifting toward smoke-free alternatives. This ongoing decline likely pressures Altria's operational revenues and margins within the smokable products segment.
The U.S. regulatory environment's failure to authorize a sufficient number of smoke-free products and enforce restrictions on illicit products puts future net margins at risk, as legal products face unfair competition and reduced consumer trust.

Altria Group Earnings and Revenue Growth

Altria Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Altria Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Altria Group's revenue will decrease by 2.4% annually over the next 3 years.
The bearish analysts assume that profit margins will shrink from 55.0% today to 45.7% in 3 years time.
The bearish analysts expect earnings to reach $8.7 billion (and earnings per share of $5.28) by about April 2028, down from $11.2 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.4x on those 2028 earnings, up from 8.8x today. This future PE is lower than the current PE for the US Tobacco industry at 16.2x.
Analysts expect the number of shares outstanding to decline by 1.57% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Altria Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Altria's strategic investments in smoke-free products, such as NJOY and on!, are showing promising growth in volume and market share, which could positively impact revenues and earnings as the company gains a foothold in the evolving nicotine market.
The expansion of Altria's smoke-free product distribution and achieving milestones such as NJOY receiving FDA marketing orders for e-vapor products positions the company well for future revenue growth in the shifting nicotine space.
Altria's significant cash returns to shareholders through dividends and share repurchases demonstrate financial strength and management’s confidence in sustaining profitability, which may positively influence the net income and earnings per share.
Altria's strong financial performance from its traditional tobacco products, with adjusted operating income growth and expanded operating margins, indicates robust core business health that could contribute positively to the overall earnings.
Encouraging regulatory actions by state AGs and potential FDA measures against illicit e-vapor products could enhance Altria's legitimate market share of smoke-free products, supporting revenue growth and operating margin improvements in the longer term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Altria Group is $50.22, which represents one standard deviation below the consensus price target of $57.14. This valuation is based on what can be assumed as the expectations of Altria Group's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $73.0, and the most bearish reporting a price target of just $46.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $19.0 billion, earnings will come to $8.7 billion, and it would be trading on a PE ratio of 11.4x, assuming you use a discount rate of 7.1%.
Given the current share price of $58.56, the bearish analyst price target of $50.22 is 16.6% lower.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Illicit E-Vapor Surge Will Jeopardize Smoke-Free Prospects

Shared on23 Apr 25Fair value Increased 0.02%

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Shared on23 Apr 25
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Shared on16 Apr 25
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