Does Altria’s Valuation Look Attractive after Recent Correction?

Stock performance

On January 22, Morgan Stanley downgraded Altria Group (MO) from “equal weight” to “underweight.” The downgrade led Altria’s stock price to fall to a 52-week low of $44.57 on Tuesday before closing the day at $44.97.

Since the beginning of 2018, the company has lost 37.0% of its share value. During the same period, the stock price of its peers Philip Morris International (PM) and British American Tobacco (BTI) have fallen 31.1% and 51.6%, respectively.

Does Altria’s Valuation Look Attractive after Recent Correction?

Low valuation multiple

The steep fall in Altria’s stock price has also lowered its valuation multiple. On January 22, Altria was trading at 11.3x analysts’ 2018 EPS estimate of $4.00 and 10.6x their 2019 EPS estimate of $4.24 with its EPS expected to rise by 17.8% in 2018 and 6.2% in 2019.

In comparison, Philip Morris was trading at 14.5x analysts’ 2018 EPS estimate of $5.02 and 13.8x their 2019 EPS estimate of $5.28 with its EPS expected to rise by 6.4% in 2018 and 5.2% in 2019.

Attractive dividend yield

On December 12, Altria had declared dividends of $0.80 per share, which represents an annualized payout of $3.20. In 2018, the company paid dividends of $3.00, which represents growth of 18.1% from $2.54 in 2017.

As of January 22, the company’s dividend yield stood at 7.12% with its stock price trading at $44.97. On the same day, the dividend yield of Philip Morris and British American Tobacco stood at 6.26% and 8.32%, respectively.

Altria is scheduled to post its fourth-quarter earnings on January 31. Stay tuned for the pre-earnings review.