Proprietary Data Insights Financial Pros’ Top Tobacco Stock Searches in the Last Month
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Why Financial Pros Search This Eroding Business |
Smoking is in perpetual decline in America. In the year 1965, 50.1 million U.S. adults smoked. Today, it’s less than 20 million. So, why do financial pros keep searching out Altria (MO)? The company is a cash cow, pumping out $8.8 billion in free-cash-flow per year, or $5.35 per share. Between dividends and buybacks, it yields a bit more than 10% each year. But with $27 billion in debt and slowing growth, is 10% safe and worth your money? Altria’s Business Creators of the Marlboro Man, Altria Group, is one of the largest players in the tobacco industry, with its hands in cigarettes, cigars, smokeless tobacco, and oral nicotine pouches. In 2008, they split from Phillip Morris, which took the international portion of the business. Altria primarily serves the U.S. market. What many people don’t know is that the company also holds interests in wine, beer, cannabis, and e-cigarettes through stakes in Anheuser-Busch InBev, Cronos Group, and JUUL Labs. The company segments its business as follows:
Despite a massive writeoff in Juul several years ago, Altria’s done well stabilizing its business, leveraging price increases to improve sales and margins. Financials
Source: Stock Analysis Revenues typically grow primarily due to price increases, not higher volumes. The company hoped its investments in cannabis and Juul would drive new growth. Unfortunately, the legal system got in its way. Notably, margins improved over the last decade by almost 10% from gross down to profit margin. While the company holds $26.3 billion in net debt, it pays less than 4%, easily payable with its cash flow. Valuation
Source: Stock Analysis Despite the high dividend payout, Altria trades at a low P/E and price-to-cash flow ratio, even compared to many of its peers. Phillip Morris (PM), the international arm, trades at higher multiples despite having similar growth. Other peers like British American Tobacco Institute (BTI) trade at lower multiples and demonstrate higher revenue growth. Growth
Source: Seeking Alpha Vector Group Ltd (VGR) pulled in the highest revenue growth last year. However, it’s been struggling over the last several. Turning Point Brands (TPB) and MO both saw revenue decreases last year. However, MO expects to temper those in 2023. Profitability
Source: Seeking Alpha Altria’s margins are the best across the board. That’s interesting, given the discount it trades at relative to several competitors. Our Opinion 9/10 Social issues aside, Altria trades at a nice discount. Management is very shareholder friendly and expects to cover share buybacks and the 8.5% dividend without a problem. Will this stock double anytime soon? Unlikely. But it should offer steady returns for a long-term investor. |
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