Altria Group(NYSE:MO) has emerged as a surprise stock market winner in 2024, driven by an impressive earnings recovery. At the time of writing, shares had risen 41% this year to their highest level since 2019.
There’s a lot that investors like about this tobacco giant, including the stock’s 7% dividend yield as an attractive income opportunity. That said, is there enough upside in the outlook to keep the rally going?
Do you miss the morning spoon?Breakfast news delivers it all in one fast, silly and free daily newsletter. Register for free »
Let’s discuss whether Altria stock can be bought, sold, or held in 2025.
The tobacco industry has undergone a dramatic transformation in recent years. Even as the number of smokers continues to decline worldwide, consumers are increasingly opting for smoke-free alternatives.
These include electronic cigarettes and oral tobacco, which are seen as less harmful replacements and are proving to be very popular. Altria, the leading US cigarette manufacturer known for iconic brands such as Marlboro and Parliament, appears to be successfully navigating these changing market dynamics by diversifying into smoke-free products.
In the company’s third quarter (for the period ended September 30), the story was adjusted earnings per share (EPS) growth of 7.8% year over year, thanks to a better-than-expected revenue figure and efforts in cost control. .
Altria’s e-cigarette brand NJOY posted a 16% increase in consumable cartridge shipment volume, helping the company capture a 6.2% retail market share, up from 3.2% in Q3 2023. The other highlight is ON! nicotine pouches showed a 46% increase in volume.
On the cigarette side, Altria managed to balance lower sales volumes with higher prices, especially in the premium category, supporting cash flows across the company. For full-year 2024, management targets adjusted earnings per share between $5.07 and $5.15, representing growth of 2.5% to 4% from 2023.
That’s great news for investors as they consider the sustainability of the $1.02 per share quarterly dividend. The company is recognized as a Dividend King as it has increased its annual payouts over the past 55 years, with management reaffirming its commitment to continue this streak until at least 2028. Investors who have confidence in Altria’s ability to be profitable to stay and implement a long-term strategy have a good reason to buy or hold the stock today.
MO dividend yield, data from YCharts.
It’s important to critically examine Altria’s prospects to understand what could go wrong with the investment idea.
Arguably the most significant challenge facing the company comes down to the intensely competitive industry environment. While ON! nicotine pouches contribute to the growth, they are struggling to match the success of ZYN Philip Morris International. The category market share of 19.1% for ON! decreased by 3.8 percentage points compared to last year, in contrast to ZYN’s dominant market position of 73%.
There is also a question about the positioning of Altria’s NJOY brand and how the category will evolve as consumers have many alternative technologies to choose from. Philip Morris, for example, plans to launch its Iqos Iluma heat-not-burn tobacco product in the United States late next year, which could potentially erode NJOY’s market share if users decide to make the switch.
All of this is happening against the backdrop of complex regulations at the federal and state levels, adding an additional layer of risk that could undermine Altria’s growth prospects. Investors skeptical about the company’s relevance over the next decade may consider exiting their positions or reducing their exposure.
Despite all the uncertainties that investors must balance, my conclusion is that Altria’s business is alive and well heading into 2025. The growth of the smoke-free product portfolio provides a financial runway while opening new doors of strategic flexibility.
What I like about the stock as a buy right now is its attractive valuation. In addition to the high-yield dividend, the shares trade at just 11 times consensus 2024 EPS as a forward price-to-earnings (P/E) ratio. That is well below Philip Morris’ expected P/E of 19.
My interpretation is that the stock is undervalued relative to its larger competitor. Ultimately, Altria shares offer excellent value that can work for investors within a diversified portfolio.
Consider the following before purchasing shares in Altria Group:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Altria Group wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $872,947!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns December 2, 2024
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.
Is Altria Stock Buy, Sell, or Hold in 2025? was originally published by The Motley Fool
