On Friday, BofA Securities revised its stance on Altria Group Inc. (NYSE: NYSE:MO), upgrading the stock from Neutral to Buy and increasing the price target to $65.00, up from the previous $55.00. The adjustment comes as the analyst identifies several key factors that could enhance investor sentiment and potentially lead to positive earnings revisions for the company.
The stock has shown strong momentum, with a 50% return over the past year and currently trades near its 52-week high of $58.03. According to InvestingPro analysis, Altria appears slightly undervalued based on its Fair Value metrics.
The analyst points to a number of drivers behind the improved outlook for Altria. Firstly, the priorities of the Republican administration, such as a lower corporate tax rate, tariffs, and tighter border controls, are expected to have a favorable impact. Secondly, any boost in the disposable income of lower-income consumers could strengthen sales through the convenience channel, which accounts for around 70% of Altria's cigarette volume, thus benefiting the company's top line.
The company maintains impressive gross profit margins of nearly 70% and has demonstrated strong profitability, as highlighted in InvestingPro's comprehensive analysis, which includes 15+ additional insights available to subscribers.
Additionally, the analyst notes that the consensus may not fully account for the net benefits of Altria's new $600 million Optimize & Accelerate cost savings program. The rising market trend that favors value stocks is also seen as a potential uplift for Altria's share performance.
The report further highlights management's commitment to shareholder returns, underscored by a progressive dividend policy with a current yield of 7.17% and ongoing stock buybacks. The company has maintained dividend payments for an impressive 54 consecutive years and currently offers a dividend of $4.08 per share. The new price target of $65 is based on an 11.5 times multiple of the analyst's estimated 2026 earnings per share (EPS) of $5.65, which is a slight increase of 5 cents from previous estimates.
Discover more detailed financial metrics and analysis in InvestingPro's exclusive Research Report, part of their coverage of 1,400+ US stocks. This valuation represents a 5-10% premium to Altria's average price-to-earnings (PE) ratio since July 2017, which was 10.8x following the FDA's announcement of a more aggressive regulatory plan. The previous price target of $55 was based on a 10.3 times multiple of the estimated 2025 EPS of $5.32.
In other recent news, Altria Group Inc. reported strong third-quarter financial results, surpassing expectations. The company noted earnings per share (EPS) of $1.38, a 7.9% increase from the prior year, and a 7.8% increase in adjusted diluted EPS for Q3.
Despite facing business challenges and a decline in the cigarette market share, Altria is expected to meet its EPS growth target of 2-5% for 2024 and 2025, thanks to factors like cost-cutting initiatives and the expected growth in Smokeless EBIT.
Barclays (LON:BARC) has adjusted its price target for Altria to $46.00, maintaining its Underweight rating on the stock. Meanwhile, Stifel maintained a Buy rating while raising the stock's price target to $60, reflecting confidence in the company's performance. Both firms acknowledge Altria's recent financial success and strategic initiatives.
Apart from these developments, Altria is also launching a modernization initiative expected to save $600 million over five years. The company's Smokeable products segment saw a 7.1% increase in adjusted operating income, despite a decline in domestic cigarette volumes. Lastly, the oral tobacco category, including NJOY and on!, exhibited significant growth, with NJOY's consumables shipment volume rising over 15%.
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