Altria Group, Inc. MO stock is currently trading at a forward P/E ratio of 10.29, offering a 23.9% discount compared with the Zacks Tobacco industry’s average of 13.53. This makes the MO stock appear undervalued, especially compared with major industry players like Philip Morris International Inc. PM at 21.29 and Turning Point Brands, Inc. TPB, which has a higher P/E ratio of 21.57. 

While MO's lower valuation might catch the attention of value-focused investors, it may also reflect market caution about its growth potential. The discount could indicate skepticism regarding Altria’s ability to outperform expectations or reflect a mispricing of its intrinsic value.

MO Looks Attractive From Valuation Standpoint

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Given this valuation gap, investors must consider how to approach the MO stock. To make a well-versed decision, it is crucial to assess the company’s fundamental strengths and weaknesses.

Altria stock closed at $55.05 during Friday’s trading session, 5.2% below its 52-week high of $58.04, which was reached on Nov. 27, 2024. Over the past year, Altria has experienced a 35.3% increase in stock value, outperforming competitors such as British American Tobacco p.l.c. BTI, which has seen a 25.2% gain. In comparison, the tobacco industry has witnessed an overall improvement of 54%, whereas the broader Zacks Consumer Staples sector has gained 2.4% in a year. The S&P 500 has also seen a 19.7% increase during the same period. 

Meanwhile, the MO stock is trading above its 50-day and 200-day moving averages, indicating a bullish trend. Given this positive momentum, it is essential to evaluate Altria’s prospects and consider the best strategy for incorporating it into your portfolio.

MO Trades Above 50 & 200-Day Moving Averages

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Altria's Transition to a Smoke-Free Future

Altria is making significant strides in its ambitious shift toward a smoke-free future. With a strong emphasis on harm reduction, regulatory compliance and innovative alternatives for adult smokers, the company is redefining its position in the tobacco industry. By prioritizing reduced-risk products, MO is leading the way in creating a healthier future for its customers while continuing to adapt to evolving market demands.

NJOY, a core part of Altria's transformation strategy, is solidifying its position in the competitive e-vapor market. In 2024, NJOY successfully expanded its product distribution to over 100,000 stores, securing a prominent retail position. 

During the fourth quarter of 2024, NJOY experienced 15% growth in consumable shipments, while its device shipments saw an impressive 22% increase. As a result, its retail share of consumables surged to 6.4% in the quarter, marking a 2.8-point year-over-year increase. The company, through its subsidiary Helix Innovations, holds full global ownership of on!, a widely embraced tobacco-derived nicotine pouch product. In the fourth quarter, on! reported 44% year-over-year growth in shipment volume. This highlights Altria's ability to carve out significant space in the competitive e-vapor market.

Aligned with its smoke-free vision, Altria announced the launch of an "Optimize and Accelerate” initiative aimed at modernizing operations, leveraging technology and achieving at least $600 million in cost savings over the next five years. With its focus on innovation, regulatory collaboration and operational efficiency, the company is positioning itself as a leader in the transition to a smoke-free future.

Pricing Power Enhances MO’s Competitive Edge

Altria has been benefiting from its strong pricing power, which has helped it stay firm, even amid soft cigarette shipment volumes. In the fourth quarter of 2024, higher pricing strategies aided revenues across the Smokeable Products and Oral Tobacco categories. This focus on pricing strength has enabled the company to drive profitability in key segments, showcasing its resilience in a competitive market.

What Could Derail Altria’s Growth Trajectory?

Altria’s push into the smoke-free category faces a growing obstacle as illicit flavored disposable e-vapor products are growing rapidly. The company estimates that the e-vapor category experienced growth of nearly 30% in 2024, with illicit products accounting for over 60% of the category. These products undermine MO’s efforts in the e-vapor segment, wherein NJOY's market share is growing but remains somewhat overshadowed by illicit products. This trend not only affects Altria's revenue potential in the smoke-free segment but also complicates regulatory enforcement efforts. Despite MO's active engagement with regulators, the growing presence of unauthorized products continues to hinder the market potential for its compliant offerings, such as NJOY and on!

Adding to these challenges, Altria’s domestic cigarette shipment volumes tumbled 8.8% due to the industry’s decline rate and retail share losses in the fourth quarter of 2024. The industry’s decline was a result of persistent discretionary income challenges for Adult Tobacco Consumers and increases in illegitimate e-vapor products. Such a trend reflects challenges in sustaining growth in Altria's smokable products segment, which is still its core revenue-generating category.

MO’s Estimate Revisions Reflect Uncertainty

Amid these challenges, analysts have lowered their projections for Altria’s first-quarter 2025 earnings by 2.5% in the past 30 days, with the Zacks Consensus Estimate now pinned at $1.18 per share. This reduction reflects a broader uncertainty surrounding the company’s outlook. In addition, the consensus estimate for Altria’s full-year earnings has also moved down 0.6% over the past 30 days to $5.32 per share.

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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Navigating MO Stock: A Guide for Investors

For investors evaluating Altria stock, the company presents an attractive opportunity at its current valuation. While its shift toward reduced-risk products and smoke-free alternatives offers long-term potential, investors should be mindful of the challenges MO faces, including growing competition from illicit e-vapor products and declining cigarette shipment volumes. Given recent estimate revisions and broader market uncertainties, it is wise to carefully assess the balance between its promising transition and the risks. Potential investors may want to wait for now, while existing shareholders may continue to hold the stock in their portfolio. At present, Altria carries a Zacks Rank #3 (Hold). 

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

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This article originally published on Zacks Investment Research (zacks.com).

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