Recently, Altria upgraded its earnings projections following the decision to sell part of its 10% stake in Belgian beer company Anheuser-Busch InBev (BUD). This divestment, totaling USD 2.4 billion through offerings in various regions and repurchase by ABI, has allowed Altria to bolster its share buyback program for 2024 by an additional USD 2.4 billion, supplementing the previously planned USD 1 billion. With fewer shares in circulation, Altria now anticipates its adjusted diluted EPS to range between USD 5.05 and USD 5.17 in 2024, marking a 3.2% year-on-year increase at the midpoint of this guidance range, compared to the 2.5% rise projected earlier.
This upgraded outlook is particularly noteworthy as Altria has historically reduced its earnings forecasts as the year progresses. The current positive revision signals a stronger confidence in its financial performance, which bodes well for both capital gains and dividends. Over the past decade, Altria’s total returns have been significantly bolstered by its dividends, with total returns at 101.4% compared to a mere 11.5% in price returns alone. The current trailing twelve months (TTM) yield stands robust at 8.53%, despite a decline from 9.5% levels earlier, primarily due to a rise in stock price.
Cheap Valueation
Altria’s non-GAAP forward P/E ratio is now at 8.93x, slightly below its five-year average of 9.74x. Despite the upside shrinking from previous estimates, analysts’ projections suggest a potential 9.2% price upside, which could be slightly higher if the EPS figures meet the midpoint of the company’s guidance. Even considering Altria’s conservative historical revisions, a forward P/E estimate of around 9.1x still indicates a 7% upside.
However, it’s important to recognize the challenges Altria faces. Revenues from smokeable products, which constitute 88% of its total revenue, have seen a year-on-year contraction for the past three quarters. Although oral tobacco revenue has increased, it remains insufficient to drive overall revenue growth. The company’s ventures into tobacco alternatives, such as NJOY, are promising but still too small to make a significant impact.
Final Thoughts
In summary, Altria presents a compelling near-term investment case based on its improved earnings outlook, potential price upside, and attractive dividend yield. However, for sustainable long-term growth, Altria needs to gain significant traction in tobacco alternatives. Despite these challenges, current positive indicators make Altria one of the 20 highest-yielding defensive consumer stocks in the market.
