Title: Should You Buy, Sell, or Hold Altria Stock in 2025?
Revised Article:
Striding forward in 2024's stock market, Altria Group (MO, 0.06%) has emerged as a surprising victor, boasting a staggering 41% surge in shares since the year began–reaching their highest levels since 2019. This tobacco titan offers investors more than just a captivating performance; it's the 7% dividend yield that serves as a remarkable income opportunity. So, is this momentum set to continue in 2025? Let's delve into whether Altria stock is a worthy buy, sell, or hold.
Weighing the Pros: Altria's allure
The landscape of the tobacco industry has undergone a remarkable evolution. While smoking rates are steadily decelerating around the world, consumers have shifted their preferences towards less harmful alternatives such as electronic cigarettes and oral tobacco. Positioned as the leading U.S. cigarette manufacturer, with iconic brands like Marlboro and Parliament, Altria seems to be expertly navigating these dynamic market trends by venturing into smoke-free product ventures.
Swapping its third quarter report (for October 1, 2023 to December 31, 2023), Altria exhibited a powerful 7.8% year-over-year increase in adjusted earnings per share (EPS). This was primarily due to exceptional sales performance and implementing cost control measures.
Spotlighting Altria's hero products – NJOY e-cigarettes and ON nicotine pouches – the company managed to capture a compelling 6.2% retail market share, a substantial increase from the third quarter of 2023's 3.2%. NJOY's consumable device cartridges saw a 16% growth in shipments, while ON posted a striking 46% increase in volume.
In the conventional cigarette category, Altria showed remarkable resilience, balancing lower sales volumes with higher pricing, especially in the premium category. This enabled the company to bolster overall cash flows for 2024. Management forecasts an adjusted EPS in the range of $5.07 to $5.15 for the entire year, signifying a 2.5% to 4% growth compared to 2023.
This optimistic outlook paves the way for the $1.02 per share quarterly dividend's sustainability, fueling investor confidence. Altria is renowned as a Dividend King, recognized for increasing its annual payout for an unbroken 55-year streak, with management affirming a commitment to persist with this trend at least until 2028. Those convinced in Altria's capacity to continue its profitability and pursue a long-term strategy may find the stock an appealing investment option.
Pondering the Cons: Weighing the risks
Assessing Altria's future thoroughly requires a critical evaluation of potential downsides.
The tobacco industry face intense competition, compelling challenges that Altria must tackle. While ON nicotine pouches provide growth, they lag behind ZYN from Philip Morris in market share, at 19.1% compared to ZYN's dominant 73%. Positioning and adaptability of the NJOY brand within the rapidly evolving market is vital in securing a competitive edge.
Philip Morris's impending entry into the U.S. market with their iqos Iluma heat-not-burn tobacco product poses another risk to NJOY. The possibility of customers choosing the novel Iluma over NJOY could lead to a decline in market share.
Furthermore, the tobacco market operates within a complex regulatory framework, which adds an extra layer of scrutiny and uncertainty, particularly given the rapidly evolving landscape of e-cigarettes and nicotine pouches.
My Take: Altria's appeal remains
Despite the challenges investors will need to carefully consider, Altria Group's prospects remain undeniably tantalizing. The growth potential of its smoke-free products portfolio opens a path for long-term growth opportunities and strategic adaptation.
Investors drawn to Altria's stock as a buy opportunity align with its attractive valuation. Beyond the appealing high-yield dividend, shares trade at just 11 times the consensus 2024 EPS – a juxtaposed forward P/E to Philip Morris for sales at 19.
My analysis suggests that despite the plethora of challenges, Altria stock offers a unique and compelling value proposition that can strengthen diversified investment portfolios.
In light of Altria's positive performance, investors might consider investing more money into the company, seeking to capitalize on its dividend yield and long-term growth prospects in the tobacco industry. However, it's crucial to remember the challenges Altria faces, such as intense competition and regulatory changes, and to conduct thorough research or consult with a finance professional before making an investment decision.
