Analyzing Altria’s 1Q16 Valuation Multiple and Growth Initiatives

How Altria Group Beat Earnings and Sales Estimates in 1Q16

(Continued from Prior Part)

Relative valuation

Altria Group (MO) and Philip Morris International (PM) are trading at higher valuations relative to the S&P 500 Index (SPY) (IVV) (VOO) and the Dow Jones Industrial Average (DIA).

Altria is trading at a forward PE (price-to-earnings) multiple of 20.2x, and PM is trading at a forward PE multiple of 21.2x. In comparison, the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.6x and 16.6x, respectively. All valuations are as of April 29, 2016.

Peer valuations

Competitors British American Tobacco (BTI) and Japan Tobacco (JAPAY) (JAPAF) are trading at lower PE multiples of 18.0x and 18.9x, respectively, compared to Altria Group.

Reynolds American (RAI) is trading at a forward PE multiple of 20.4x. Reynolds American is trading at a higher valuation multiple since the announcement of its asset sale to Japan Tobacco. To learn more about the deal, you can read Japan Tobacco Buys Natural American Spirit’s International Assets.

Innovative e-cigarettes

As the industry struggles with falling smoking rates, higher sales taxes, and stricter regulations in mature markets, developing economies have offered relatively better prospects. A growing population and rising disposable income in emerging markets act as top-down growth catalysts for the industry. Increasing health consciousness has also led companies to shift to innovative e-cigarettes.

As a result, Altria continues to invest in developing a leading portfolio of innovative products to meet adult consumer demand. The company continues to expand its Nu Mark subsidiary’s distribution of MarkTen XL products. MarkTen XL’s results have been robust in leading markets. Altria is also working with former subsidiary Philip Morris on an FDA application for a modified risk tobacco product claim.

Additionally, SABMiller’s (SBMRY) merger with Anheuser-Busch InBev (BUD) will also benefit Altria’s growth trajectory, as Altria has an economic interest in SABMiller.

To learn more about Altria’s business, please read An Inside-Out Breakdown of Altria Group, a Diversified US Tobacco Giant.

For more industry updates and analysis, you can visit Market Realist’s Consumer Products page.

Browse this series on Market Realist:

• Part 1 - By How Much Did Altria’s 1Q16 Earnings Outperform Estimates?

• Part 2 - Altria Missed Estimates Last Quarter—How Was Its 1Q16?

• Part 3 - Why Altria’s 1Q16 Smokeable Segment’s Shipment Volume Rose