Altria Group Inc (MO, Financial) recently experienced a daily loss of -2.36%, while recording a 3-month gain of 2.12%. With an Earnings Per Share (EPS) (EPS) of 3.81, the question arises: Is this stock fairly valued? In this article, we delve into an in-depth valuation analysis of Altria Group Inc (MO), guiding value investors to make informed decisions.
Company Overview
Altria Group, with a market cap of $77.50 billion, is a conglomerate comprising Philip Morris USA, U.S. Smokeless Tobacco, John Middleton, and Helix Innovations. The company holds a significant interest in the world's largest brewer, Anheuser-Busch InBev, and a 42% stake in cannabis manufacturer Cronos. Altria Group's Marlboro brand is the leading cigarette brand in the U.S., holding a 43% annual share in 2022. The company's current stock price stands at $43.7, close to its GF Value of $46.29, indicating a fairly valued status.
Understanding GF Value
The GF Value is a proprietary measure that provides an estimation of a stock's intrinsic value. It's calculated based on three key factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates.
The GF Value Line, visible on our summary page, represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, suggesting poor future returns. Conversely, if it's significantly below the GF Value Line, the stock might be undervalued, indicating potentially high future returns.
For Altria Group (MO, Financial), the GF Value estimates the stock's fair value at $46.29. Given its current stock price of $43.7, Altria Group is considered fairly valued, suggesting that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength Analysis
Before investing, it's crucial to assess the financial strength of a company. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Key metrics like the cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial health. Altria Group's cash-to-debt ratio stands at 0.03, which is worse than 94.23% of companies in the Tobacco Products industry, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies tends to carry less risk, especially those demonstrating consistent profitability over the long term. Altria Group has been profitable 9 years over the past 10 years, with an operating margin of 56.01%, better than 94.12% of companies in the Tobacco Products industry. This strongly indicates Altria Group's profitability.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Altria Group's 3-year average annual revenue growth is 2.7%, which ranks worse than 71.43% of companies in the Tobacco Products industry. However, its 3-year average EBITDA growth rate is 57.6%, ranking better than 78.57% of companies in the industry, indicating strong growth.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Altria Group's ROIC over the past 12 months was 28.08, significantly higher than its WACC of 7.07, indicating that the company is creating value for shareholders.
Conclusion
In summary, Altria Group Inc (MO, Financial) appears to be fairly valued. Despite its poor financial strength, the company's strong profitability and growth, better than 78.57% of companies in the Tobacco Products industry, make it an interesting prospect for investors. For more information about Altria Group, you can check out its 30-Year Financials here.
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