Case Study: Altria (MO) stock according to high performing analysts
Key Points
Performance
Altria's shares fell by 0.65% this week, pushing their year-to-date gains down to 2.39%. This compares favorably to the S&P 500 which is up by 0.98% on a year-to-date basis thus far.
Event & Impact
In 2018, Altria made two major investments, accounting for nearly $15 billion, into reduced risk products in an attempt to diversify its revenue stream away from combustible tobacco products (cigarettes). Those investments didn’t work, resulting in billions of write downs. And yet, Altria’s cigarette volumes continue to fall, forcing the company into more M&A activity this week.
Noteworthy News:
Altria announced this week that it is acquiring eVapor company, NJOY, for $2.75 billion, in the company’s latest attempt to move away from a cigarette-centric business model.
Nobias Insights
66% of recent articles published by credible authors focused on Altria shares offer a “bullish” bias. The one credible Wall Street analyst who covers MO believes shares are likely to rise in value. The average price target being applied to Altria by these credible analysts is $59.00, which implies upside potential of approximately 26.6% relative to the stock’s current share price of $46.61.
Bullish Take Dividend Sensei, a Nobias 4-star rated author, said, “Altria Group, Inc. is one of the most celebrated dividend kings in history. Not just for its incredible 53-year dividend growth streak, but also because it's the single best-performing stock in history.”
Bearish Take Tradevestor, a Nobias 4-star rated author, said, “I hope Altria Group, Inc. is proceeding with more caution as well this time after e-"vapor"-ating $13 Billion last time around.”
MO Mar 2023
For decades, Altria (MO) has been providing not only a high dividend yield, but also, market beating total returns to its shareholders. And yet, during the last 5 years, the stock has majorly underperformed the major averages.
Altria is the leading U.S. tobacco company and a societal shift away from combustible tobacco has hurt the stock’s sales volumes in a significant way. But, as we saw this week, the company is still aggressively trying to reduce its dependency on cigarette sales and move into markets that provide a more sustainable future in terms of sales and earnings growth.
Bullish Nobias Credible Analysts Opinions:
Dividend Sensei, a Nobias 4-star rated author, recently published an article on Altria which highlighted its near-term headwinds and the company’s long-term plans to overcome them. Dividend Sensei began their article by stating, “Altria Group, Inc. (NYSE:MO) is one of the most celebrated dividend kings in history. Not just for its incredible 53-year dividend growth streak, but also because it's the single best-performing stock in history.” They continued, noting that, “$1 invested 90 years ago into $173,000 today, adjusted for inflation.” And yet, despite being the top performing long-term stock in the market, Altria faces major headwinds in 2023.
Regarding Altria’s cigarette sales volumes, Dividend Sensei said, “MO's volume declines in Q4 were surprisingly bad, at 12%. The company was able to mostly offset this with 9% price increases for the quarter and 9.5% for the entire year, higher than the 8% inflation rate of 2022.” The author continued, “Do you know what U.S. cigarette sales will likely be in 2061? Zero. So how can MO survive for four decades if its current core business is extinct? Because the RRP-based smoke-free future will succeed.”
Dividend Sensei highlighted Altria’s post-cigarette future plans, writing, “MO has a joint venture with Japan Tobacco to market its Horizon heat sticks through its retail network in the U.S. as soon as the FDA approves them.” They also wrote, “It's on! Oral nicotine pouches are growing at 70% though granted from a small base. Still, it's achieved a 6% market share of the oral tobacco market, and its market share in this fast-growing part of the industry is slowly but steadily rising.”
RRP stands for “reduced risk products” and its clear that the company is focused on investing in non-combustible tobacco products to diversify its revenue stream. Dividend Sensei said that there are risks associated with such a major operational change; however, they concluded, “For now, I can confidently say that all the best data points to one clear thing. Altria remains an 8% yielding rich retirement dream aristocrat that continues to deliver where it counts.”
Lee Jackson, a Nobias 4-star rated author, also recently covered Altria at 24/7 Wall Street, putting a spotlight on the stock’s recent weakness and its relatively attractive valuation. Jackson wrote, “This maker of tobacco products offers value investors a great entry point now as it has been hit as cigarette sales have slowed.” He continued, “Altria Group Inc. is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.”
“Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer, which some feel is worth more than $10 billion and may be a segment of the company that could be sold,” Jackson added. Lastly, he touched upon the stock’s $1 billion “shareholder-friendly” buyback plan that was recently announced and said that, “Investors receive a 7.93% dividend” as well.
Jackson concluded his piece stating, “Stifel has a $50 target price on Altria stock. The consensus target is $49.65, and the shares ended Wednesday trading at $47.14.”
Although Altria’s long-term performance has proven to be top notch, over the last 5 years this company has underperformed the market in a major way. Altria shares are down by 29.52% during the trailing 5-year period, whereas the S&P 500 has risen by 39.64% during this same time period. One of the major reasons that Altria has underperformed recently its its failed JUUL acquisition saga.
On Dec. 20th, 2018, Altria acquired a 35% stake in JUUL, a leading vaping company at the time, for $12.8 billion. Furthermore, the company invested $1.8 billion into Cronos, a marijuana company, in late 2020 as well. These moves were meant to diversify its revenue away from combustible tobacco; however, in hindsight, neither move panned out, resulting in billions of dollars in write downs.
In their article, Dividend Sensei wrote, “while Juul and Cronos were a mistake, which management has admitted, the balance sheet damage has since been fixed.” With that stronger balance sheet in mind, Altria announced a new acquisition this week, with the company, once again, trying to buy its way into the e-vapor market.
Bearish Nobias Credible Analysts Opinions:
Tradevestor, a Nobias 4-star rated author, covered this M&A activity in their recent article at Seeking Alpha. The author wrote, “Altria Group, Inc. investors are having a déjà vu moment this morning. The company has announced its $2.75 Billion acquisition of NJOY Holdings, as reported by Seeking Alpha. This is not a surprise given recent news items including the Juul exit (thank heavens for that, although it means little at this point financially) and swirling rumors about an NJOY deal.” They highlighted their outlook on the deal, stating, “After listening to Altria's business update webcast, I am presenting a few reasons why I am cautiously optimistic that this time is different with Altria's attempt to buy growth.”
Listing the differences between Altria’s JUUL and NJOY acquisitions, Tradevestor said, “The most obvious difference is the price tag. With Juul, Altria shelled out $13 Billion. While $2.5 Billion is still a hefty amount, it represents only 3% of Altria's current market cap.” They continued, “With Juul, Altria had a 35% majority stake but was not the outright owner. This time, Altria has outright acquired NJOY, giving it both strategic and operational control it likely never had with Juul. As the CEO mentioned, Altria can leverage its existing resources to benefit the consumers (and the business of course).”
And, regarding regulatory approval of products, Tradevestor wrote, “NJOY's ACE is the only pod-based e-vapor product with FDA marketing authorization, with the E-cigarette and Vape Market expected to have a CAGR of 30% between 2023 and 2030.”
”NJOY currently holds 6 of the 23 e-vapor marketing authorization from the FDA, according to the business update,” they added. Furthermore, Tradevestor said, “It also appears like NJOY is being responsible in marketing and securing its products as it is not in the top products used by under-age smokers.”
In conclusion, the author stated, “Whenever someone says Altria Group, Inc. is a bad investment due to declining volume, I make a case for the company by showing its history, operating discipline, pricing power, undervaluation, and the general power of compounding.”
“I am still fully invested in Altria and plan to do so based on what I've read so far about NJOY and what I heard on this business update. However, I am proceeding with caution and not adding to my position here,” they said.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Highlighting the ongoing risk with Altria shares, Tradevestor ended their report by stating, “I hope Altria Group, Inc. is proceeding with more caution as well this time after e-"vapor"-ating $13 billion last time around.”
Overall bias of Nobias Credible Analysts and Bloggers:
Despite the ongoing uncertainty surrounding Altria with regard to cigarette volumes and its ability to grow its RRP product portfolio, 66% of recent articles published by credible authors have included a “Bullish” bias towards shares. Also, the only credible Wall Street analysts that Nobias tracks who has provided an opinion on Altria is bullish.
Currently, the average price target being applied to MO shares by the credible Wall Street analyst community is $59.00. Today, MO trades for $46.61. Therefore, that credible analyst price target implies upside potential of approximately 26.6%. And, once you factor in the stock’s roughly 8% dividend yield, near-term total return potential rises up to the 35% area.
Disclosure: Nicholas Ward is long MO.. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.