MO Stock Overview
Altria Group, Inc., through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States.
Altria Group, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$45.15|
|52 Week High||US$57.05|
|52 Week Low||US$41.00|
|1 Month Change||7.60%|
|3 Month Change||-14.88%|
|1 Year Change||-7.10%|
|3 Year Change||-2.86%|
|5 Year Change||-29.11%|
|Change since IPO||216.84%|
Recent News & Updates
Altria: Why Investors Should Look Past Q2 Revenue And Profit Decline
Altria saw declines in both its revenues and operating income in Q2 as macro headwinds led to an 11% drop in its cigarette volume. However, the results were made worse by some one-off items, and Altria reiterated its outlook for a 4-7% EPS growth in 2022. Underlying trends in the U.S. cigarettes business are stable, and recent FDA actions on e-vapor can benefit Altria earnings. We expect a stable U.S. cigarette market. Altria can now free itself to compete in e-vapor, and struggling Oral Tobacco segment is small. At $44, Altria has a 9x P/E and an 8.2% Dividend Yield. We expect a total return of 74% (20.0% annualized) by 2025 year-end. Buy. Introduction Altria Group, Inc. (MO) released Q2 2022 results on Thursday morning (July 28). MO stock finished the day flattish (down 0.2%). We upgraded our rating on Altria to Buy in February 2020. Shares currently have a gain of 11% since our upgrade, with dividends more than offsetting a 7% decline in the share price, having fallen 23% from their April 2022 peak: Librarian Capital Altria Rating vs. Share Price (Last 1 Year) Source: Seeking Alpha (28-Jul-22). Q2 2022 results were largely in line with our investment case. Macro headwinds are pressuring Altria volumes, and both revenues and operating income fell year-on-year. However, part of the decline was due to one-off items, and management reaffirmed their guidance for a 4-7% Adjusted EPS growth in 2022. We expect continuing stability in the U.S. cigarette market, and recent FDA action on e-vapor makes this more likely. Altria shares now trade at a 9.3x P/E and an 8.2% Dividend Yield. Our forecasts indicate a total return of 74% (20.0% annualized) by 2025 year-end. Buy. Altria Buy Case Recap Our investment case on Altria is based on the continuing ability of its cigarette business to deliver on its traditional earnings algorithm, which includes: A low-to-mid single-digit annual decline in cigarette volumes A mid-to-high single-digit annual rise in average cigarette prices Together these give a low-single-digit annual growth in revenues Revenues After Excise tend to grow even faster as excise growth lags EBIT margin expands with higher unit price and operational savings Including buybacks, EPS tends to grow at mid-to-high single-digits Altria's cigarette volume decline accelerated during 2016-19, partly attributed to an explosive growth in U.S. e-vapor. However, Altria still guided to an EPS growth of 4-7% in both 2019 and 2020 (achieving 5.8% in 2019). FDA actions against e-vapor in late 2019 pushed e-vapor volume downwards until Q1 2020, after which it resumed growing but at a modest pace. COVID-19 boosted U.S. cigarette consumption, as pandemic restrictions meant more occasions to smoke and government stimulus programs added to smokers' disposable incomes. Altria's Smokeable volume decline was just 2% in 2020, and remained below 5% during H1 2021 (but rising in H2). Altria Smokeable Volume Declines (Adjusted) (2013-21) Source: Altria company filings. NB. Figures adjusted for inventory movements. We believe declines in U.S. cigarette volume will remain stable, with e-vapor growth staying modest, and nicotine pouches and Heat Not Burn both being too small to have a meaningful impact. Q2 2022 was an atypically bad quarter for Altria, due to rises in gasoline prices and inflation. Revenues and Profits Declined in Q2 In Q2 2022, Altria’s Net Revenues After Excise fell 4.3% year-on-year, and Adjusted Operating Companies Income (“OCI”) fell 1.7%. Net Income fell 0.2%, but Adjusted EPS rose 2.4% largely because of a lower share count: Altria Group P&L (Q1& H1 2022 vs. Prior Year) Source: Altria results release (Q2 2022). Across H1, Net Revenues After Excise fell 2.9%, OCI rose 0.8%, Net Income rose 1.4% and Adjusted EPS rose 3.5%. Macro headwinds on Altria cigarette volumes was certainly a factor in Q2, but there were also one-offs. The disposal of the Wine business, for example, contributed 0.8% to the year-on-year OCI decline in both Q2 and H1: Altria OCI by Segment (Q1& H1 2022 vs. Prior Year) Source: Altria results release (Q1 2022). The Smokeable segment contributed 87% of segment OCI in Q2, and rose 0.6% year-on-year. Oral Tobacco, the other segment, saw OCI fell 8.9% as it continued to struggle with structural issues. Macro Headwinds Hitting Cigarettes Demand Cigarette volumes in the Smokeable segment fell 11.1% year-on-year. However, as is structural for tobacco, Net Revenues fell only 2.9% thanks to price increases, and Net Revenues After Excise fell only 0.7% as excise did not rise as much as price. Smokeable Adjusted OCI rose 0.6% even on lower revenues, driven by lower promotion spend: Altria Smokeable Financials (Q1& H1 2022 vs. Prior Year) Source: Altria results release (Q2 2022). The gap between volume decline (11.1%) and Net Revenue After Excise decline (0.7%) was achieved while the average retail pack price for Marlboro cigarettes rose by just 5.6% ($0.43) year-on-year, below inflation and lower than the ($0.45) increase in Q2 2021. Marlboro’s retail share actually rose 10 bps from Q1 (at 42.7%), and total discount segment market share of the industry was sequentially stable at 26.4%. Management attributed the volume decline to macro headwinds, specifically higher gasoline prices and inflation. In Altria’s estimates, "Macroeconomic & Other Factors" as a headwind to industry volume stood at 2.6% on a last-twelve-month basis as of Q2 2022, continuing its deterioration from being a positive benefit in the 12 months to Q3 2021: U.S. Cigarette Industry Volume Decline by Component (Rolling 12 Months) Source: Altria quarterly metrics (Q2 2022). However, Altria’s year-on-year decline in Q2 was also made worse by one-off items. Trade inventory movements made its volume decline about 1 ppt worse; its cigarette volume decline was an estimated 10% on an adjusted basis. There was also a one-off step-up in MSA settlement costs as higher inflation assumptions have been used. Management observed that consumers have prioritized tobacco purchases by reducing non-tobacco purchases, and that surveys indicate smokers remained brand-loyal. Volume declines may decelerate once consumers have adjusted to the new environment, and prior-year comparables will also get easier as we move into H2 2022: 1-Year Cigarette Volume Decline - Altria vs. Industry (Since 2020) 1-Year Cigarette Volume Decline - Altria vs. Industry (Since 2020) To sum up, the Smokeable segment generated positive OCI growth even with an 11% shipment volume decline, while the underlying decline was about 1 ppt less. We believe that there is a good chance that Q2 would mark the trough in year-on-year volume declines, and expect OCI growth to return to low-to-mid single-digits in future quarters. FDA Actions Limiting E-Vapor Growth FDA actions have caused U.S. e-vapor volume to reverse in Q2, and may hinder it further in future. According to estimates quoted by Altria, U.S. e-vapor volume in Q2 was down 7% from Q1, its first sequential decline since Q1 2020, largely due to a reduction in vape store volumes: U.S E-Vapor Category Volume by Quarter (Since 2019) Source: Altria company filings. The FDA has been active in issuing Marketing Denial Orders (“MDOs”) on an increasing number of e-vapor products since late 2021, including Juul (which has obtained a temporary stay from the courts) and Imperial Brands (OTCQX:IMBBY) (which tried but failed). Enforcement actions may have been stepped up after a law giving the FDA explicit authority to regulate synthetic nicotine went into effect in April. In the first two weeks of July, warning letters were sent to 107 retailers. On the Q2 earnings call, Altria management highlighted how the FDA has so far issued Marketing Granted Orders to only 23 e-vapor products representing just 1% of e-vapor industry volume, how the only decisions made on flavored e-vapor products have been rejections, and how a substantial number of e-vapor products contain synthetic nicotine and were thus required to obtain FDA authorisations by July 13. Altria expects further changes in the sector. Continuing stability in the U.S. cigarettes market will be beneficial to Altria earnings, and ongoing FDA actions on e-vapor make this more likely.
FDA conducting evaluation of tobacco division amid 'increasing number of novel products'
The U.S. FDA will conduct an evaluation of its Center for Tobacco Products using outside advisors as the agency aims to meet the challenges of regulation. "Challenges lie ahead as we determine how the agency will navigate complex policy issues and determine enforcement activities for an increasing number of novel products that could potentially have significant consequences for public health," FDA Commissioner Robert Califf said in a statement. The center was established in 2009. The FDA has tapped the Reagan-Udall Foundation to work with a group of outside experts in reporting its findings and recommendations within 60 days of starting the evaluation. The evaluation will also include the agency's Human Foods Program. Tobacco/vaping stocks: Philip Morris International (NYSE:PM), Altria Group (NYSE:MO), British American Tobacco (NYSE:BTI), Imperial Brands (OTCQX:IMBBY), Japan Tobacco (OTCPK:JAPAY), Vector Group (VGR), RLX Technology (RLX). Read Seeking Alpha's contributor's The Value Pendulum's assessment of Philip Morris ahead of earnings on July 21.
Altria: Time To Start Thinking About The End Of The Dividend
The bad news for Altria never seems to end, with the FDA now proposing to ban JUUL E-cigarettes, thereby sending the share price plunging. This comes after Altria's flagship reduced-risk product, IQOS, was also banned, and the Biden administration is seeking to reduce nicotine levels in cigarettes to non-addictive levels. Whilst the dividend is safe for now, these setbacks make it time to start thinking about the end, because the company is left increasingly reliant upon cigarettes. Based upon my valuations, I estimate that Altria share price is trading broadly around its intrinsic value. Uncertainty is rife, thus, following this analysis, I only believe that a hold rating is appropriate for Altria. Introduction Despite the turbulent ride in markets thus far into 2022, the share price of Altria Group, Inc. (MO) was actually seeing a relatively solid start to the year after climbing 10% by early June. Well, that was until the news that the FDA was proposing to ban JUUL E-cigarettes in the United States sent the share price plunging. This came on the back of earlier news that the Biden administration is still pushing to reduce nicotine in cigarettes to non-addictive levels. Thus, disappointingly, I feel it is now time to start thinking about the end of their dividends, despite being a long-time supporter. Background Ever since the major tobacco lawsuits two decades ago, the tobacco industry has not been a stranger to controversy and government regulatory risk, but the last five years have still felt like a rollercoaster ride. There have been frequent negative headlines starting back in the middle of 2017, when the FDA first proposed to reduce nicotine levels in cigarettes. The subsequently proposed menthol cigarette ban later in 2018 continued to levy more downwards pressure upon share prices, despite these regulatory actions still not being enacted and thus only lurking in the dark, metaphorically speaking. Fast-forward to 2021 and, once again, their flagship reduced-risk product, IQOS, was banned in the United States in what was sadly a precursor to JUUL facing a similar fate recently. Despite these setbacks weighing down Altria's share price, thankfully their dividends have not disappointed nor has their cash flow performance that continues to generate immense free cash flow. Author Thanks to the economically resilient and inelastic demand of the tobacco industry, the secular decline of tobacco demand is yet to wreak havoc upon their dividends with their current quarterly rate of $0.90 per share almost 50% higher than their previous level of $0.61 per share five years ago. This very strong improvement was underpinned by their operating cash flow and very minimal capital expenditure, which leaves immense free cash flow that consistently provides strong dividend coverage of 125%+. Whilst this dipped to only an adequate 118.10% during 2021, this was simply due to an abnormal $623m early debt extinguishment fee. When looking into 2022, their steady performance continued with operating cash flow of $3.075b during the first quarter, effectively flat year-on-year versus their previous result of $3.04b during the first quarter of 2021. Since their historical cash flow performance is hardly breaking news, the big question is how they will fare going forwards in this increasingly difficult regulatory environment that is likely to see further setbacks as the federal government intensifies its anti-tobacco policies. Following this latest setback with JUUL, which is being described as a "serious" issue for their reduced-risk efforts and previous missteps with IQOS that are increasingly leaving them reliant upon their core cigarette business segment, it seems prudent for investors to start thinking about the end of their dividends. Whether JUUL overcomes the proposed ban remains to be seen, but it should be remembered that even before this latest setback, their investment was already disappointing, with frequent large multi-billion dollar impairments. Whilst their strong dividend coverage provides safety in the short to medium term, eventually, their declining cigarette volumes will weigh down their financial performance, especially if the FDA finally proceeds with their proposed nicotine regulations, as wished by the Biden administration. When looking elsewhere, after their now largely failed JUUL investment, sadly their balance sheet is weighed down with debt, thereby seeing their net debt currently standing at $22.569b. Thankfully, this only sees a net debt-to-operating cash flow of 2.69, which remains within the moderate territory of between 2.01 and 3.50. This seems safe, but nevertheless, it still reduces their ability to make further investments to diversify into other areas without potentially jeopardizing the safety of their dividends. It should be remembered that shareholders are not the only stakeholders within their capital structure, and thus if their future earnings eventually diminish sufficiently to warrant a dividend reduction, their leverage metrics would also deteriorate significantly. This would create a requirement to deleverage because debt markets would be far less willing to routinely refinance debt as they are currently and by extension, this means that once their dividends start to wobble, they are likely to fall off a cliff very quickly down to zero as they have to retain relatively more of their free cash flow. Discounted Cash Flow Valuations Since they are a very mature company whose core business segment faces a long-term secular decline as tobacco demand diminishes, their shares are almost exclusively sought by income investors. This means that their intrinsic value is heavily dependent upon the future income they can provide their shareholders, and thus can be estimated by utilizing discounted cash flow valuations that replace their free cash flow with their dividend payments. If interested, further details regarding the inputs utilized for these valuations can be found in the relevant subsequent section. There are numerous ways to approach these valuations, but given their continuous setbacks trying to diversify away from tobacco, sadly, it now seems best to structure these around the idea of their dividends coming to an end. In my view, the most bearish scenario should still see another ten years of their current quarterly dividends of $0.90 per share thanks to their immense free cash flow, after which they are overwhelmed with minimal scope to reward their shareholders, as their debt becomes too burdensome as their earnings erode. Conversely, I see the most bullish scenario where their current dividends are sustained perpetually into the future, as they manage to diversify into new areas. Meanwhile, the remaining scenarios reside in between this range, whereby their dividends end at one-year intervals. Whilst they are likely to provide further dividend increases during the coming years, I expect these to be immaterial following these seemingly never-ending setbacks, with their exclusion providing a margin of safety. Author When reviewing the results, the current share price of $42.31 aligns with the intrinsic value whereby their dividends last for another 20 years before they subsequently end and fall to zero. If phrased another way, this means that their share price appears to be pricing another 20 years of their current dividends, and thus if they last longer, investors stand to generate alpha and vice-a-versa. Under the most bullish scenario, this sees an intrinsic value of $62.58, which is a very impressive 48% higher than their current share price, which would see investors generate significant alpha. Meanwhile, under the most bearish scenario, their intrinsic value is merely $26.87 and thus 36% lower, thereby seeing investors nursing sizeable losses. Since Altria was able to keep operating cash flow steady year-on-year during the first quarter of 2022 despite cigarette volumes declining 8.0% year-on-year, I personally expect their strong coverage will see their current dividends continuing as long as there are no further regulatory issues, such as lowering nicotine to non-addictive levels. Whilst this would indicate an intrinsic value towards the upper end of this range of circa $50, disappointingly, this nicotine regulation remains in the cards. This, in my eyes, leaves their intrinsic value lower around their current share price.
We Like Altria Group's (NYSE:MO) Returns And Here's How They're Trending
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to...
|MO||US Tobacco||US Market|
Return vs Industry: MO exceeded the US Tobacco industry which returned -56.5% over the past year.
Return vs Market: MO exceeded the US Market which returned -11.7% over the past year.
|MO Average Weekly Movement||4.6%|
|Tobacco Industry Average Movement||15.4%|
|Market Average Movement||7.7%|
|10% most volatile stocks in US Market||16.9%|
|10% least volatile stocks in US Market||3.2%|
Stable Share Price: MO is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 5% a week.
Volatility Over Time: MO's weekly volatility (5%) has been stable over the past year.
About the Company
Altria Group, Inc., through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States. The company provides cigarettes primarily under the Marlboro brand; cigars and pipe tobacco principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands, as well as provides on! oral nicotine pouches.
Altria Group, Inc. Fundamentals Summary
|MO fundamental statistics|
Is MO overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|MO income statement (TTM)|
|Cost of Revenue||US$6.78b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
Oct 27, 2022
|Earnings per share (EPS)||0.97|
|Net Profit Margin||8.40%|
How did MO perform over the long term?See historical performance and comparison