On Wednesday, Barclays (LON:BARC) adjusted its price target for Altria Group Inc. (NYSE: NYSE:MO), increasing it to $46.00 from the previous $45.00. Despite the adjustment, the firm maintained its Underweight rating on the tobacco company's stock.
Following the release of Altria's third-quarter earnings, the analyst noted that Altria's stock had risen approximately 8%, contrasting with the flat performance of the S&P Consumer Staples Index. The results showed earnings per share (EPS) in line with expectations and a reiteration of the full-year 2024 EPS guidance.
Altria's stock performance has been better than expected given the underlying business challenges it faces. The company has experienced an accelerated loss in cigarette market share, with a 130 basis point decline in the third quarter of 2024 alone. This trend suggests Altria could lag behind the overall U.S. cigarette market by 3%. Competitors like IMB, JT-VGR, and BAT (LON:BATS) are expected to either gain or maintain their market share at Altria's expense.
Year-to-date in 2024, Altria's net price realization on cigarettes after excise taxes has remained around 10%, mirroring figures from the previous two years. This consistency suggests a limit to the pricing power Altria can leverage in the market. In comparison, BAT anticipates a global cigarette pricing increase of about 4-5%, with its U.S. pricing post-excise taxes at approximately 8% in the first half of 2024, versus Altria's 9%.
Despite these challenges, Altria is expected to meet its EPS growth target of 2-5% for 2024 and 2025. This optimism is bolstered by factors such as share repurchases funded by the sale of its remaining 8% stake in ABI, cost-cutting initiatives like the Optimize and Accelerate program, which is projected to save $600 million over five years, and the expected $250 million annual cost savings starting from the fourth quarter of 2024 due to the expiration of the MSA legal settlement fund. Additionally, growth in Smokeless EBIT is anticipated as the product "on!" begins to contribute to earnings.
The report also mentioned Altria's potential for a turnaround through its smokeless business and the e-cigarette brand NJOY. However, growth for NJOY has been stagnant, with shipments flat for several consecutive quarters, in a market dominated by unregulated Chinese imports. Improved regulation in the U.S. e-cigarette market and a stronger position for NJOY are seen as necessary for Altria's recovery. Another potential upside for Altria shareholders could be a re-rating of the company's stock if Philip Morris International Inc. (NYSE:PM) continues to exceed expectations, thus raising its valuation multiples.
In other recent news, Altria Group has announced strong third-quarter financial results, surpassing expectations, particularly in the Smokeable products segment. The company reported earnings per share (EPS) of $1.38, a 7.9% increase from the prior year, and $0.02 higher than the consensus estimate. Altria Group also noted a 7.8% increase in adjusted diluted EPS for Q3 and a 1.6% rise year-to-date.
Stifel maintained a Buy rating on Altria Group while raising the stock's price target to $60 from the previous $54, reflecting confidence in the company's performance and strategic initiatives. The company's Smokeable products segment saw a 7.1% increase in adjusted operating income, despite a decline in domestic cigarette volumes.
In contrast, the oral tobacco category, including NJOY and on!, exhibited significant growth, with NJOY's consumables shipment volume rising over 15%. Altria Group is also launching a modernization initiative expected to save $600 million over five years.
InvestingPro Insights
Altria Group Inc. (NYSE: MO) presents a complex financial picture that aligns with the challenges and opportunities outlined in the article. According to InvestingPro data, Altria's P/E ratio stands at 9.16, indicating that the stock is trading at a relatively low earnings multiple. This valuation metric supports the article's discussion of Altria's stock performance in the face of business challenges.
InvestingPro Tips highlight that Altria "has raised its dividend for 14 consecutive years" and "pays a significant dividend to shareholders." These points are particularly relevant given the article's focus on Altria's financial performance and shareholder value. The current dividend yield of 7.53% underscores the company's commitment to returning value to shareholders, which may be a factor in the stock's resilience despite market share losses in the cigarette segment.
Another InvestingPro Tip notes that Altria "operates with a moderate level of debt," which could be seen as a positive factor in its ability to fund share repurchases and cost-cutting initiatives mentioned in the article. This financial flexibility may contribute to Altria's ability to meet its EPS growth targets for 2024 and 2025, as discussed in the report.
For investors seeking a deeper understanding of Altria's financial position and future prospects, InvestingPro offers 13 additional tips that could provide valuable insights into the company's performance and potential.
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