The rapid surge in smoking habits due to changing lifestyles and hectic schedules has boosted the prospects of the tobacco market. The global tobacco market is expected to grow at a 2.1% CAGR to reach $973.23 billion by 2028 owing to the growing number of consumers in emerging countries.
Tobacco products producer Altria Group, Inc. (MO) stands to benefit from this trend. Moreover, MO enjoys a status as a consumer defensive company, which usually holds its grounds well in an uncertain economic backdrop.
The company’s financial stability is also demonstrated by its high-yield dividend. On December 7, MO declared a regular quarterly dividend of $0.94 per share, payable to shareholders on January 10, 2023. Its annual dividend of $3.76 yields 8.26% on the current price level.
The company’s dividend payouts have increased at a 3.9% CAGR over the past three years and a 7.7% CAGR over the past five years. Additionally, MO has a record of growing its dividend for 53 consecutive years.
The stock has gained 7.7% over the past six months and 10% over the past three months to close its last trading session at $45.52.
Here are the factors that could influence MO’s performance in the upcoming months:
Solid Financials
For the fiscal third quarter that ended September 30, 2022, MO’s operating income increased 5.5% year-over-year to $3.11 billion. Its adjusted net earnings rose 1.9% from the prior-year quarter to $2.30 billion. Adjusted EPS improved 4.9% from the prior-year period to $1.28.
Discounted Valuation
In terms of its forward non-GAAP P/E, MO is trading at 9.49x, 49.9% lower than the industry average of 18.93x. The stock’s forward non-GAAP PEG multiple of 1.89 is 23.8% lower than the industry average of 2.49. In terms of forward EV/EBIT, it is trading at 8.78x, 43.6% lower than the 15.57x industry average.
Robust Profitability
MO’s trailing-12-month gross profit margin, EBIT margin, and net income margin of 67.66%, 59.01%, and 22.71% are 115.7%, 629.3%, and 446.2% higher than the industry averages of 31.37%, 8.09%, and 4.16%, respectively.
Its trailing-12-month ROTC and ROTA of 31.17% and 13.84% are 405.6% and 270.6% higher than their respective industry averages of 6.17% and 3.73%.
POWR Ratings Reflect Promising Prospects
MO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MO has an A grade for Quality, consistent with the higher-than-industry profitability ratios.
In the nine-stock Tobacco industry, it is ranked #4. The industry is rated A.
Click here to see the additional POWR Ratings for MO (Growth, Value, Momentum, Stability, and Sentiment).
View all the top stocks in the Tobacco industry here.
Bottom Line
MO looks well-positioned to gain from industrial tailwinds. Its long dividend-paying history and wide profitability are promising. On top of it, analysts expect its EPS to grow by 4.2% per annum over the next five years. Therefore, this tobacco stock might be a solid buy now.
How Does Altria Group, Inc. (MO) Stack up Against Its Peers?
While MO has an overall POWR Rating of B, one might consider looking at its industry peers, Japan Tobacco Inc. (JAPAY) and Imperial Brands PLC (IMBBY), which have an overall A (Strong Buy) rating.
MO shares were trading at $45.21 per share on Wednesday afternoon, down $0.31 (-0.68%). Year-to-date, MO has declined -1.09%, versus a -0.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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