As of October 26, 2023, Altria Group Inc (MO, Financial) registered a daily loss of -8.31%, contributing to a 3-month loss of -11.7%. Despite these figures, the company's Earnings Per Share (EPS) stands at 3.81. The primary question is whether the stock is modestly undervalued in the current market. This comprehensive analysis aims to answer this question and provide a thorough valuation of Altria Group (MO).
Company Overview
Altria Group comprises Philip Morris USA, U.S. Smokeless Tobacco, John Middleton, and Helix Innovations. It holds a 10% interest in Anheuser-Busch InBev, the world's largest brewer. Its tobacco subsidiaries position Altria Group as a leading player in cigarettes and smokeless tobacco in the United States and the number-two spot in machine-made cigars. The company's Marlboro brand is the leading cigarette brand in the U.S. with a 42% annual share in 2022. Altria Group also holds a 42% stake in cannabis manufacturer Cronos and has acquired Njoy Holdings in 2023.
Comparing the stock price of $39.26 to the GF Value of $46.49, Altria Group (MO, Financial) appears to be modestly undervalued. The following analysis delves deeper into the company's valuation, financial health, and profitability.
Understanding the GF Value
The GF Value is a proprietary valuation model that estimates the intrinsic value of a stock. It considers historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line, visible on the summary page, represents the fair trading value of the stock.
According to this model, Altria Group (MO, Financial) appears to be modestly undervalued. The stock's fair value is estimated based on historical multiples, internal adjustments based on past business growth, and future performance estimates. If the share price is significantly above the GF Value Line, the stock may be overvalued, potentially leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, potentially leading to higher future returns. Given its current price of $39.26 per share, Altria Group stock appears to be modestly undervalued.
Because Altria Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with robust financial strength reduces the risk of permanent loss. The cash-to-debt ratio and interest coverage provide a clear picture of a company's financial health. Altria Group has a cash-to-debt ratio of 0.03, which is worse than 94.23% of 52 companies in the Tobacco Products industry. The overall financial strength of Altria Group is 4 out of 10, indicating that its financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Altria Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $20.70 billion and Earnings Per Share (EPS) of $3.81. Its operating margin is 56.01%, which ranks better than 92.31% of 52 companies in the Tobacco Products industry. Overall, GuruFocus ranks the profitability of Altria Group at 8 out of 10, indicating strong profitability.
Growth is a critical factor in a company's valuation. Altria Group's 3-year average revenue growth rate is worse than 71.43% of 42 companies in the Tobacco Products industry. However, Altria Group's 3-year average EBITDA growth rate is 57.6%, ranking better than 80.49% of 41 companies in the Tobacco Products industry.
ROIC vs WACC
Another measure of a company's profitability is the comparison of its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Altria Group's ROIC is 28.08, and its WACC is 7.67.
Conclusion
Overall, Altria Group (MO, Financial) stock appears to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 80.49% of 41 companies in the Tobacco Products industry. To learn more about Altria Group stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
