Altria Stock (NYSE:MO)
The stock of Altria Group, Inc. (NYSE:MO) saw a substantial decline last week, but it was well-supported, allowing the stock to finish the week strongly.
Nevertheless, Altria stock has struggled to regain its upward trend since peaking out in early December.
Bulls would claim that strong pessimism is represented due to the NTM dividend yield of 8.4%, which is significantly higher than its 10-year average of 5.8%.
Challenges Are Looming for Altria
A crucial concern about a structural slowdown in its tobacco goods may deter long-term investors from taking advantage of the yield’s apparent allure.
Additionally, Cowen analysts noted in an early January research that Philip Morris (NYSE:PM), with a 59% market share, is the market leader in the world of smokeless tobacco. Investors should be aware that Atria’s joint venture with Japan Tobacco (OTCPK:JAPAF) can be a genuine rival against Philip MOrris, given that the company is anticipated to introduce its IQOS products in the US in 2024. Because of this, market participants may need to account for a suitable degree of execution risk, which means a higher-than-average dividend yield should be anticipated.
Moreover, the macroeconomic picture has worsened since November. Consumer spending has been constrained due to the continuing high inflation rates and a more bleak employment picture, although inflation rates have continued to drop.
Plus, Fed officials are probably still worried about the labor market’s strength and how it may affect the ability to maintain higher inflation rates. As a result, the economy, the competition in the smokeless tobacco market, and declining consumer spending are anticipated to present several challenges for MO investors.
In light of the worsening macroeconomic conditions, UBS (NYSE:UBS) further emphasized that consumers have continued to trade down and stay away from luxury goods.
The company’s medium-term prospects continue to draw mixed reviews from Wall Street analysts, who are probably planning for a challenging transition away from its tobacco products.
Altria is predicted to post revenue growth of 1.3% and adjusted EBIT growth of 2.1% in FY23. Although Altria’s operating model has inherent operating leverage, its topline growth seems like it needs to be revised in comparison to its market leadership.
Despite this, Altria has a strong track record of profitability, and it still expects to post an adjusted EBIT margin of 58.4% in FY23, slightly higher than the 58% reported in FY22.
Altria Is Attractively Valued
Investors should expect Altria to preserve its pricing leadership and not foresee the company taking unfavorable pricing action to defend its market share.
Additionally, it’s possible that the macroeconomic doom and gloom were exaggerated. There are indications that a harsh landing for the world economy may not occur. A recent Fed research stated that there was a chance the US economy could avoid a recession. Moreover, economists are now less pessimistic, and the consensus notion of a hard landing has just changed.
Since Altria has demonstrated its profitability over the last five years, particularly during the COVID pandemic, the consensus estimates are reliable.
In order to break through the December resistance zone, when sellers rejected further higher, Atria buyers must resurface with greater conviction.
Despite the severe selloff, we observed positive price activity last week. More than half of the losses from the retreat were recovered by buyers when they came back to assist in halting additional downward movement.
As a result, it shows that purchasers are confident in backing Altria at its depreciated current pricing. Furthermore, we think that the sharp decline last week certainly cleaned out some weak holders, lowering the risk at which patient buyers can enter the market. So we’re giving a Buy rating to Altria stock.
Featured Image: Megapixl © Tarheel1776
