Since the last article on tobacco company Altria (NYSE:MO) in February, the stock price has increased by 11%. This was expected due to the company’s market multiples and high dividends. However, recent developments have raised questions about whether Altria is still a good investment. Here are three reasons why it is:
1. Improved Outlook: Despite weak Q1 2024 results, Altria’s earnings guidance has improved. The company upgraded its figures in March after selling some of its shares in Anheuser-Busch InBev and increasing its share buyback program. It now expects adjusted diluted EPS to increase by 3.2% in 2024.
2. Potential for Price Rise: While Altria’s non-GAAP forward P/E ratio has shrunk, analysts still see a 9.2% price upside based on estimates. Even with conservative EPS estimates, there is still a 7% upside to the stock. This indicates that there is no risk of a decline in share price.
3. High Yield: Altria’s trailing twelve months yield is at 8.53%, with a forward dividend yield for 2024 at 8.61%. Despite a small 2.1% YoY increase in dividends, the yield is still robust. This is due to the company maintaining its dividend levels.
Overall, while there are risks associated with Altria’s softening revenue performance, the stock still offers potential for growth and high dividends. It is still a good investment opportunity for those looking for stable returns. Revenue for the company has been declining year over year for the past three quarters, with eight out of the last 10 quarters also showing a decrease. This drop in revenue can be attributed to the decreasing popularity of cigarettes.
In the first quarter of 2024, net revenue from smokeable products, which make up 88% of the total revenue, fell by 3.6%. On the other hand, revenue from oral tobacco, accounting for the remaining 12%, saw a 3.7% increase. However, it is uncertain if oral tobacco can be relied upon to drive future revenues as the company has minimal presence in tobacco alternatives.
Although the company has recently seen some growth in NJOY, it is still too small to make a significant impact on revenue. Despite the declining revenues, Altria looks promising for now due to an upgraded earnings outlook, a potentially positive forward P/E ratio, and a rewarding dividend yield. However, to maintain its competitive edge, the company will need to see progress in its tobacco alternatives. Until then, long-term prospects remain uncertain.
As of now, a Buy rating is recommended for Altria. Please note that the securities discussed in this article do not trade on a major U.S. exchange, so it is important to be aware of the associated risks.