Altria Group, Inc. MO is currently trading at a forward 12-month price-to-sales (P/E) ratio of 4.22, higher than the industry average of 3.97. This premium indicates investors are factoring in strong growth expectations, positioning Altria above its peers, such as British American Tobacco p.l.c. BTI and Turning Point Brands, Inc. TPB. However, such a valuation premium also signals potential risk if the company fails to deliver on these optimistic projections. MO’s Value Score of D adds to these concerns.
 

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Shares of Altria have dipped 0.6% in the past three months against the industry’s growth of 5.6%. The tobacco giant has underperformed the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 1.2% and 6.6% in the same time frame.

MO Price Performance vs. Industry, S&P 500 & Sector

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MO is also trading below its 50-day moving averages, indicating potential weakness in the stock's momentum. A high valuation and the stock's recent underperformance suggest caution in light of the ongoing challenges.

MO Trades Below 50-Day Moving Average

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Obstacles in Altria’s Growth Path

Altria’s business remains heavily reliant on cigarettes despite its efforts to diversify into growth areas like e-vapor and oral tobacco products. The company’s Smokeable Products segment continues to be its largest revenue driver, yet it faces significant headwinds, reflecting broader challenges in the cigarette industry.

During the second quarter and first half of 2024, cigarette shipment volumes suffered under sustained pressure due to persistent macroeconomic headwinds and a surge in illicit disposable e-vapor products, which are increasingly pulling consumers away from traditional cigarettes. While inflation has shown signs of easing, many adult smokers still feel the financial pinch, impacting their spending choices. The rapid growth of these illegal e-vapor options, compounded by insufficient regulatory enforcement, has accelerated the shift from cigarettes, leading to more pronounced revenue declines in Altria’s Smokeable Products segment and weighing heavily on its top line.

In the second quarter, Altria’s Smokeable Products segment revenues dropped 5.6% to $5,495 million —forming 88.5% of the company’s total revenues. Domestic cigarette shipments fell by 13%, a decline driven by multiple factors, including overall industry contraction, market share losses and adjustments in trade inventories. Economic pressures continue to limit Adult Tobacco Consumers' (ATC) discretionary income, while the rising availability of illegal e-vapor products accelerates volume declines across the industry.

Altria’s dependency on cigarette revenues poses a significant risk if growth in new, smoke-free categories fails to compensate for these declines. Prolonged downturns in cigarette volume without offsetting gains could lead to sustained revenue contraction, negatively impacting the company’s financial health and stock value.

Can Strategic Growth Areas Propel MO’s Recovery?

Altria has been implementing several growth strategies to counteract declining cigarette sales and diversify its revenue streams. The company has been consistently broadening its portfolio of reduced-risk products, including brands like NJOY and on!, to cater to the increasing consumer demand for alternatives to traditional cigarettes amid rising health consciousness. This approach also aligns with industry-wide shifts, exemplified by the success of Philip Morris International’s PM IQOS and ZYN brands.

In the second quarter of 2024, Altria’s smoke-free business demonstrated impressive gains in market share and volume, with NJOY standing out for its substantial growth in device and consumable shipments. Meanwhile, the success of on! has strengthened Altria's foothold in the U.S. market, where tobacco-derived nicotine (TDN) products are increasingly favored by consumers seeking lower-risk alternatives. Together, these advancements underscore MO’s commitment to capturing growth in the reduced-risk category. 

However, Altria faces substantial regulatory and legislative risks that could impact future performance. Potential actions, such as flavor bans or more stringent marketing restrictions, may stifle growth for NJOY and other smoke-free products, challenging Altria’s ability to diversify away from its core cigarette business.

Strategic Guide to Investing in Altria

Altria faces significant investment risks despite its attempts to transition toward a smoke-free future. Currently trading at a premium valuation, the company's stock reflects high growth expectations that may be unrealistic, given its ongoing reliance on declining cigarette revenues. The company struggles with soft revenues in the Smokeable Products segment, driven by economic pressures on consumers and the rise of illegal e-vapor alternatives. Looming regulatory challenges may hinder MO’s ability to adapt and grow, raising concerns for investors. Investors should thoroughly weigh these concerns and exercise caution while evaluating MO stock. Altria currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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