Altria Stock (NYSE:MO)
Altria Group, Inc. (NYSE:MO) is one of the world’s major cigarette firms. Despite repeated warnings about smoking, the corporation has constantly improved its assets and cash flow. As we’ll see throughout this piece, the company’s profits and potential for shareholder returns make Altria stock a worthwhile long-term investment.
The Financials of Altria
Altria’s headline financials have remained robust, demonstrating its strength.
Altria Group, Inc.’s diluted EPS fell 7.4% year on year, with some fluctuation. However, adjusted EPS improved by 5.4% year on year to $1.18. This is consistent with the company’s long-term projections. It also demonstrates how inexpensive the company is presently, with a P/E ratio in the single digits. The EPS is sufficient to fund the $0.94/share dividend.
The financials of the company also serve to emphasize the company’s strengths.
Cash Returns at Altria
With its great assets and cash flow, the company has focused on continuing to return capital to shareholders.
The firm paid off $1.3 billion in outstanding debt. Due to increased interest rates and the company’s relatively substantial debt load, we’d like to see the company continue to retire debt as it arrives. The business did not buy back shares as a result of its NJOY transaction, which cost $2.75 billion and will be discussed in more depth below.
However, the corporation still has $1 billion in remaining share repurchases, which accounts for around 1.25% of its market cap. Repurchasing shares is quite profitable at the present dividend yield, and we’d like to see the business increase this. We believe it can postpone purchases.
Smokeless Transactions at Altria
To accord with its long-term ambitions, the corporation has pushed to increase its smokeless portfolio.
The NJOY acquisition will cost the business $2.75 billion in cash and an additional $500 million. The payment is made in cash, with no equity released. The transaction is currently through approvals, but we expect it to finalize soon. In exchange for certain smokeless tobacco assets, the business has also totally departed its JUUL stake.
It’s the best the company could do with what was left, and we believe it’s the right decision at the right time. It will allow the company to develop its smokeless offering without having to cope with the consequences of Juul. However, there’s no denying that the corporation squandered more than $10 billion on Juul, owing mostly to regulatory difficulties.
Altria’s 2028 Goals
Altria has stated new aims for 2028.
The company expects adjusted EPS growth in the mid-single digits through 2028. The company’s adjusted EPS projection remains around $5.06/share, giving it a P/E of 9, indicating the company’s financial health. If the corporation maintains its 5% growth rate, it can reach an EPS of $6.5/share.
Altria Group, Inc. is also aiming for a comparable increase in dividend yield. The current dividend is little about 8.4%, bringing the return for those who invest now in Altria stock to 10.7%. The company intends to keep its debt-to-earnings ratio low and its adjusted OCI margin at or above 60%. The company is increasing volumes, which will sustain returns in the long run.
Thesis Peril
The most significant risk to our thesis is Altria’s lack of diversification and an increased regulatory burden due to greater tobacco taxation as a “sin” product. The company’s diversification remains limited, and smokeless items do not constitute full diversification. This could jeopardize the company’s capacity to maintain double-digit returns.
Conclusion
Altria Group, Inc. has a diverse asset portfolio. It has a P/E ratio in the single digits and has used its cash flow to achieve a dividend yield of more than 8%. The company’s objective of a 35% increase in smoke-free volumes, which would bring total volumes to around 1.1 billion units, will aid in diversification. However, it is still insignificant in comparison to the company’s typical product sales of 75 billion units.
At the same time, Altria Group, Inc. does not exhibit complete diversification. We’d like to see the company’s operations diversify further. Altria Group, Inc. shareholders will benefit from the company’s mid-single-digit earnings and dividend growth plans, as well as continuous share buybacks.
Featured Image: Megapixl © Tarheel1776
