How Does Altria’s Valuation Compare?

Valuation multiple

Due to its high visibility in Altria Group’s (MO) earnings, we’ve considered the forward PE (price-to-earnings) ratio for our analysis. The forward PE multiple is calculated by dividing Altria’s stock price by analysts’ earnings estimates for the next four quarters.

How Does Altria’s Valuation Compare?

Altria’s PE multiple

The expansion of Altria’s Nu-Mark products and the FDA’s announcement regarding a substantive science review of Altria’s modified risk tobacco product application appear to have increased investors’ confidence, leading to rise in Altria’s stock price and valuation. As of July 18, 2017, Altria was trading at 21.4x, compared with 20.9x before its 1Q17 earnings announcement.

On the same day, peers Reynolds American (RAI) and Philip Morris International (PM) were trading at 24.5x and 22.9x, respectively.

Growth prospects

To drive its sales, Altria has introduced three new MarkTen flavors and expanded the availability of MarkTen to 10,000 more stores. The company has acquired Nat Sherman to expand its portfolio of super-premium cigarettes and premium cigars. These initiatives are expected to raise Altria’s expenses. If these initiatives fail to generate the expected sales, the increased expenditure could put pressure on the company’s margins and earnings. For the next four quarters, analysts expect the company’s EPS to rise 10.3%, which may have been incorporated into the company’s current stock price.

You can mitigate company-specific risks by investing in the Consumer Staples Select Sector SPDR ETF (XLP), which has invested 19.9% of its holdings in cigarette and tobacco companies. Next, we’ll look at analysts’ recommendations for Altria.