A valuation multiple helps investors compare companies with similar business models. Due to the high visibility of Altria Group’s (MO) future earnings, we’ve opted for the forward PE multiple for our analysis. A forward PE multiple is calculated by dividing a company’s stock price with analysts’ future earnings.
Altria’s forward PE multiple
From the above graph, you can see that Altria’s forward PE multiple has declined since the beginning of 2018. As of July 13, Altria was trading at a forward PE multiple of 14.0x compared to 19.7x at the beginning of 2018. The increase in anti-tobacco regulations, a declining number of smokers, and increased competition in RRPs (reduced risk products) have led to a fall in Altria stock as well as its valuation multiple.
On the same day, its peer Philip Morris International (PM) was trading at a forward PE multiple of 15.2x. The statement issued by the FDA in March, which we looked at in a previous part of this series, has negatively impacted Altria stock more than Philip Morris stock, leading Altria to trade at a lower valuation multiple.
For the next four quarters, analysts are expecting Altria’s EPS to rise 13.1%, which could have been priced into its current stock price. If the company posts earnings lower than analysts’ expectations, the selling pressure could bring the stock and the valuation multiple down.
Next, we’ll look at analysts’ recommendations ahead of its second-quarter earnings.