NEW YORK - Altria Group Inc. (NYSE: NYSE:MO) is facing headwinds as the company reported a year-over-year decline in third-quarter revenue, attributing the 2.5% drop to decreased sales volumes of smokable and smokeless products. The tobacco giant is confronting increased competition from illicit e-vapor products, a challenge that has impacted its performance throughout the year.
Despite the downturn in sales, Altria managed to improve its adjusted operating income margin, which rose by 70 basis points to 59.6%. In a strategic move to bolster its market presence, Altria plans to expand the distribution of NJOY’s ACE pod to 70,000 stores by the end of this year, following its acquisition of NJOY.
The company has also revised its full-year earnings forecast, now expecting them to be between $4.91 and $4.98 per share. This comes after a period of stagnation for Altria's stock, which has hovered around the $40 mark since early 2021 and underperformed the S&P 500 during both 2021 and 2023.
In contrast to Altria's subdued performance, the Trefis High-Quality Portfolio has consistently outpaced the broader market with its selection of low-risk, high-return stocks. Despite market uncertainties and potential recessionary pressures that could sway consumer sentiment towards cheaper brands, affecting Altria's sales volume further, analysts have projected that Altria's valuation could reach $45 per share. This estimate is based on a price-to-earnings (P/E) multiple of 9x and anticipated earnings of $4.93 per share for the full year.
Altria's financial results earlier this year indicated a challenging environment for the tobacco industry. On March 6, 2023, the company reported underwhelming third-quarter results with revenues of $5.3 billion and an adjusted profit of $1.28 per share. The stock's performance reflected these challenges, with yearly returns of 16% in 2021, -4% in 2022, and -12% in 2023 — all trailing behind the S&P 500's movements.
Looking forward, Altria's strategy with NJOY’s ACE pod distribution expansion could be pivotal in offsetting some of the competitive pressures it faces in the evolving tobacco market.
InvestingPro Insights
In light of Altria Group's performance, let's delve into some key indicators and useful tips from InvestingPro. The company has a market capitalization of 70.92B USD and an attractive P/E ratio of 8.17, which is lower than the average for the market, suggesting it could be undervalued.
InvestingPro Data also shows a strong gross profit margin of 69.44% for Altria in the last twelve months as of Q3 2023. This aligns with one of our InvestingPro Tips, which highlights Altria's impressive gross profit margins. Such a high margin indicates the company's efficiency in turning raw materials into income, an important factor for investors.
Additionally, Altria has been consistent in rewarding its shareholders. As per InvestingPro Tips, the company has not only raised its dividend for 13 consecutive years but also maintained dividend payments for 53 consecutive years. This is corroborated by InvestingPro Data, which shows a substantial dividend yield of 9.8% as of 2023.
While Altria's revenue has been declining, the company operates with a high return on assets, as revealed by another InvestingPro Tip. This is confirmed by the InvestingPro Data showing a return on assets of 24.88% in the last twelve months as of Q3 2023, which suggests effective management of the company's assets.
In conclusion, despite some challenges, Altria shows promising signs for investors, particularly in terms of its gross profit margin, dividend consistency, and asset management. For a more comprehensive understanding and additional tips, consider exploring the InvestingPro platform which offers a wealth of insights and over 15 additional tips for Altria.
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