Altria Group (MO 0.72%) has emerged as a shocking inventory market winner in 2024, propelled by a formidable earnings rebound. On the time of this writing, its shares had surged by 41% this 12 months to their highest degree since 2019.
There’s rather a lot for buyers to love about this tobacco large, together with the inventory’s 7% dividend yield as a compelling earnings alternative. That being mentioned, are there sufficient positives within the outlook to maintain the rally going?
Let’s talk about whether or not Altria inventory is a purchase, promote, or maintain in 2025.
The case to purchase or maintain Altria inventory
The tobacco trade has undergone a dramatic transformation lately. At the same time as smoking charges proceed to say no worldwide, shoppers are more and more turning to smoke-free alternate options.
These embrace digital cigarettes and oral tobacco, seen as less-harmful replacements, that are proving to be extremely widespread. Altria, the main U.S. cigarette producer recognized for iconic manufacturers like Marlboro and Parliament, seems to be efficiently navigating these shifting market dynamics by diversifying into smoke-free merchandise.
Within the firm’s third quarter (for the interval ended Sept. 30), the story was the 7.8% year-over-year enhance in adjusted earnings per share (EPS), by a greater than anticipated top-line determine and efforts at price controls.
Picture supply: Getty Photographs.
Altria’s NJOY e-cigarette model posted a 16% climb in cargo quantity for the consumable system cartridges, which allowed the corporate to seize a 6.2% retail market share, up from 3.2% within the third quarter of 2023. The opposite standout is ON! nicotine pouches posting a 46% quantity enhance.
On the cigarette facet, Altria managed to steadiness decrease gross sales volumes with larger pricing, significantly within the premium class, supporting company-wide money flows. For the total 12 months 2024, administration is concentrating on adjusted EPS in a variety of $5.07 to $5.15, representing progress of two.5% to 4% from 2023.
That is nice information for buyers when desirous about the sustainability of the $1.02 per share quarterly dividend. The corporate is acknowledged as a Dividend King, having elevated its annual payout for the previous 55 years, with administration reaffirming a dedication to proceed that streak by not less than 2028. Traders who’re assured in Altria’s capacity to stay worthwhile and execute a long-term technique have purpose to purchase or maintain the inventory at this time.
MO dividend yield, information by YCharts.
The case to promote Altria inventory
It is essential to look at Altria’s outlook critically to know what may go improper with the funding thought.
The principle problem the corporate faces doubtless comes all the way down to the intensely aggressive trade setting. Whereas ON! nicotine pouches contribute to progress, they wrestle to match the success of ZYN from Philip Morris Worldwide. The class market share of 19.1% for ON! fell by 3.8 proportion factors from final 12 months, in distinction to ZYN’s dominant 73% market place.
There’s additionally a query surrounding Altria’s NJOY model positioning and the way the class will evolve given that customers have many different applied sciences to select from. As an example, Philip Morris plans to launch its Iqos Iluma heat-not-burn tobacco product throughout the USA late subsequent 12 months, which may probably erode NJOY’s market share if customers resolve to make the change.
All of this exists in opposition to a backdrop of advanced federal and state-level rules, including one other layer of threat that would undermine Altria’s progress prospects. Traders skeptical of the corporate’s relevance over the subsequent decade could wish to contemplate exiting their positions or lowering publicity.
The choice: I am bullish
For all of the uncertainties buyers must steadiness, my takeaway is that Altria’s enterprise is alive and effectively heading into 2025. The expansion from the smoke-free merchandise portfolio supplies a monetary runway whereas opening new doorways of strategic flexibility.
What I like concerning the inventory as a purchase proper now could be its engaging valuation. Apart from the high-yield dividend, shares are buying and selling at simply 11 occasions the consensus 2024 EPS as a ahead price-to-earnings ratio (P/E). That’s effectively beneath Philip Morris’ ahead P/E of 19.
My interpretation is that the inventory is undervalued reletive to its larger competitor. In the end, Altria inventory provides glorious worth that may work for buyers inside a diversified portfolio.
Dan Victor has no place in any of the shares talked about. The Motley Idiot recommends Philip Morris Worldwide. The Motley Idiot has a disclosure coverage.
