Altria Group (NYSE: MO) is making waves in the stock market in 2024, with its shares soaring by 41% this year, reaching heights not seen since 2019. Investors are drawn to its 7% dividend yield, but will the company’s positive outlook sustain this impressive rally?
Evaluating Altria: A Case for Buying or Holding
In recent years, the tobacco industry has faced significant changes. As smoking rates drop around the globe, more consumers are opting for smoke-free alternatives.
These options include electronic cigarettes and oral tobacco, which are increasingly viewed as safer substitutes. Altria, a leading U.S. cigarette manufacturer known for brands like Marlboro and Parliament, is adapting to these market shifts by expanding its smoke-free offerings.
In the third quarter, which ended on September 30, Altria reported a 7.8% year-over-year increase in adjusted earnings per share (EPS), boosted by stronger than expected revenue and effective cost management.
Image source: Getty Images.
Moreover, Altria’s NJOY e-cigarette brand experienced a 16% rise in shipment volume for its device cartridges, allowing it to increase its retail market share to 6.2% from 3.2% a year prior. Additionally, ON! nicotine pouches saw a remarkable 46% increase in volume.
On the traditional cigarette front, Altria countered declining sales volume with higher prices, particularly in premium products, helping to support overall cash flow. For the full year 2024, management anticipates adjusted EPS in the range of $5.07 to $5.15, indicating a growth of 2.5% to 4% from 2023.
This promising performance suggests the $1.02 per share quarterly dividend is sustainable. As a Dividend King with a history of increasing its payouts for 55 consecutive years, Altria’s commitment to maintaining this trend at least through 2028 gives solid reasons for investors to consider buying or holding the stock now.
MO dividend yield, data by YCharts.
Reasons to Consider Selling Altria Stock
While Altria shows promise, investors should critically assess potential risks associated with their investment.
The company operates in a highly competitive landscape. Though ON! nicotine pouches are growing, they’ve not yet achieved the same level of market success as ZYN from Philip Morris International, which holds a dominant market share of 73% compared to ON!’s 19.1%, a decrease of 3.8 points year-over-year.
Additionally, the market position of Altria’s NJOY brand is uncertain given the many competing technologies available to consumers. Philip Morris also plans to launch its Iqos Iluma heat-not-burn product in the U.S. late next year, which could impact NJOY’s market share.
All of these factors unfold amid complex federal and state regulations, which may pose further risks to Altria’s growth prospects. Investors who are doubtful about the company’s long-term relevance might consider reducing their exposure or selling their holdings.
Investment Outlook: A Bullish View
Despite the uncertainties, I believe Altria’s business remains strong as we head into 2025. The growth in smoke-free product sales provides financial stability and opens avenues for strategic development.
Attractive stock valuation stands out to me. Besides the appealing dividend yield, shares are trading at only 11 times the projected 2024 EPS, a much lower forward price-to-earnings ratio compared to Philip Morris’ 19. This valuation suggests that Altria may be undervalued relative to its larger competitor, offering great potential for investors looking to include it in a diversified portfolio.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein reflect those of the author and do not necessarily represent the views of Nasdaq, Inc.
