Philip Morris Outshines Altria in Tobacco Industry Future
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 6 days ago
0mins
Source: Fool
- Industry Resilience: Despite peak smoking rates in the U.S., the tobacco industry remains resilient, with giants Altria and Philip Morris consistently raising shareholder dividends, indicating strong cash flow and profitability.
- Rise of Smoke-Free Products: Philip Morris's smoke-free products now account for 41.5% of its total net sales, while Altria still heavily relies on combustible products, highlighting a strategic divergence that could impact future market share.
- Competitive Advantages: Philip Morris has successfully ramped up its Iqos heated tobacco brand internationally and acquired leading nicotine pouch brand Zyn, enhancing its competitive position in the smoke-free product sector and signaling long-term growth potential.
- Investor Preference: Given Altria's slow progress in the smoke-free space and its failed Juul investment, investors are more inclined to favor Philip Morris as a long-term hold, reflecting market confidence in its future prospects.
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Analyst Views on MO
Wall Street analysts forecast MO stock price to fall
8 Analyst Rating
4 Buy
3 Hold
1 Sell
Moderate Buy
Current: 66.480
Low
57.00
Averages
65.00
High
72.00
Current: 66.480
Low
57.00
Averages
65.00
High
72.00
About MO
Altria Group, Inc. operates a portfolio of tobacco products for United States tobacco consumers aged 21+. Its segments include smokeable products and oral tobacco products. The smokeable products segment consists of combustible cigarettes and machine-made large cigars. The oral tobacco products segment includes moist smokeless tobacco (MST) products and oral nicotine pouches. Its wholly owned subsidiaries include manufacturers of both combustible and smoke-free products. In combustibles, it owns Philip Morris USA Inc. (PM USA), and John Middleton Co. (Middleton), which are cigarette manufacturers. Its smoke-free portfolio includes ownership of U.S. Smokeless Tobacco Company LLC (USSTC), a global MST manufacturer, Helix Innovations LLC (Helix), a manufacturer of oral nicotine pouches, and NJOY, LLC (NJOY), an e-vapor manufacturer with a commercialized product portfolio. The brand portfolios of its operating companies include Marlboro, Black & Mild, Copenhagen, Skoal, on! and NJOY.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Altria Expands Nicotine Pouch Business Nationwide
- Market Transformation: Altria is gradually pivoting its business model by expanding its nicotine pouch product line, branded as “on!”, from three states to nationwide availability following FDA approvals, although the net growth potential of this initiative appears limited, showcasing the company's adaptability to future market trends.
- Sales Data: Despite a nearly 10% decline in cigarette sales last year, Altria's oral tobacco product revenue only increased by less than 1%, indicating the challenges the company faces during its transition, particularly against the backdrop of a steadily declining smoking rate.
- Product Acceptance: While the retail expansion of nicotine pouches may boost revenue, most “on!” and “on! PLUS” products have been available online for some time, suggesting that consumer purchasing habits may not significantly change due to new retail channels, reflecting limitations in market acceptance.
- Dividend Appeal: Altria's forward-looking dividend yield stands at 6.7%, providing a reliable income source among risky assets, and although meaningful growth is limited, the company demonstrates strong management of the gradual decline of its cigarette business, ensuring long-term financial stability.
See More
Altria Group's Strategic Shift to New Products
- Market Expansion: Altria Group's 'on!' nicotine pouch products are expanding retail availability from three states to nationwide following FDA authorization, which is expected to significantly enhance product accessibility and drive sales growth.
- Industry Trends: According to Gallup data, smoking rates in the U.S. have declined from 54% in 1954 to 11% in 2024, highlighting the ongoing contraction of the traditional cigarette market and underscoring the importance of Altria's strategic pivot.
- Revenue Challenges: Despite some growth in oral tobacco product revenue, the overall cigarette sales declined by nearly 10%, indicating that Altria's performance in the alternative product market has not effectively compensated for the decline in its traditional business.
- Dividend Appeal: Altria's forward-looking dividend yield stands at 6.7%, providing an attractive option for income-seeking investors, although future growth potential appears limited, the company has demonstrated effective management of its gradual exit from the cigarette market.
See More
Tobacco Industry Faces Challenges and Transformation
- Cigarette Volume Pressure: The tobacco industry is facing significant challenges with a notable decline in cigarette sales due to inflation and changing consumer preferences, with traditional cigarettes still being a major revenue source, making the ongoing sales decline a considerable threat to the industry.
- Cost Increase Risks: Industry participants are under pressure from high costs associated with key inputs such as tobacco leaf, energy, and labor, while simultaneously increasing investments in the research, development, and commercialization of smoke-free products, further squeezing profit margins.
- Popularity of Smoke-Free Products: With rising health awareness and stricter regulatory frameworks, consumers are increasingly shifting towards smoke-free alternatives like heated tobacco, vapor products, and oral nicotine, driving a gradual transformation in the industry's revenue mix.
- Market Performance Weakness: Despite the tobacco industry growing by 16.1% over the past year, it still underperformed compared to the S&P 500's 18.7% growth, indicating relative weakness within the overall market.
See More
Top Dividend Stocks for Retirees to Consider
- Verizon's Stability: Verizon Communications (VZ) dominates the U.S. wireless market with a 20-year history of dividend increases, currently yielding 5.4% while maintaining a manageable payout ratio of 56% of estimated earnings, making it a reliable choice for retirees dependent on dividend income.
- Altria's Growth Strategy: Altria Group (MO), a Dividend King, continues to thrive despite declining smoking rates by raising prices, offering a 6.32% dividend yield and projected low-single-digit annual earnings growth over the next three years, appealing to investors seeking stable income.
- Chevron's Resilience: Chevron (CVX) has demonstrated strong resilience amid Middle East turmoil, boasting 39 consecutive years of dividend increases with a current yield of 3.27%, and with Brent oil prices hovering around $100, future dividends may see significant upside, making it suitable for retirees.
- Energy Sector Outlook: Despite uncertainties in the Middle East, Chevron plans for at least 10% annualized free cash flow growth through 2030, and with current oil prices, there is potential for increased dividends, ensuring a stable income source for retirees.
See More
Top Dividend Stocks for Retirees: High Yield Recommendations
- Verizon's Stable Income: Verizon Communications has increased its dividend for 20 consecutive years, currently yielding 5.4% with a payout ratio of 56% of estimated earnings, indicating strong financial resilience, making it suitable for retirees seeking stable income.
- Altria's Pricing Strategy: Despite declining smoking rates in the U.S., Altria Group offsets falling cigarette volumes by raising prices annually, boasting a 6.6% dividend yield, with analysts projecting low-single-digit annual earnings growth over the next three years, showcasing its resilience in a mature market.
- Chevron's Growth Potential: Amid the Middle East conflict, Chevron maintains a strong track record with 39 consecutive years of dividend increases, currently yielding 3.4%, and is expected to achieve at least 10% annual free cash flow growth through 2030, highlighting robust profitability in a high oil price environment.
- Diversity in Investment Recommendations: While Verizon is considered a solid investment choice, it was not included in the Motley Fool's list of 10 best stocks, reflecting a diverse market perspective on investment opportunities, urging retirees to choose wisely.
See More
Altria Shares Rise Amid Broader Market Flight to Safety
- Market Flight to Safety: Amid escalating fears of conflict in Iran, Altria (MO) shares rose 2.9%, reflecting investor preference for defensive, high-dividend stocks, with Altria's dividend yield at 6.6%, making it particularly attractive during market turbulence.
- Year-to-Date Recovery: Altria's stock has gained 15% year-to-date, indicating a gradual stabilization after years of regulatory pressure, which has drawn increased investor interest and confidence in the company's future.
- Product Expansion: Altria announced the nationwide retail expansion of On!, a direct competitor to Zyn, which is expected to drive market share gains in the rapidly growing oral nicotine pouch segment, enhancing the company's competitive position in this market.
- Future Outlook: Altria's near-term performance will be influenced by overall market trends and investor sentiment regarding the conflict, with a first-quarter update expected in a month; if the On! Plus rollout shows positive results, the stock could see further gains.
See More
Altria Expands Nicotine Pouch Business Nationwide
- Market Transformation: Altria is gradually pivoting its business model by expanding its nicotine pouch product line, branded as “on!”, from three states to nationwide availability following FDA approvals, although the net growth potential of this initiative appears limited, showcasing the company's adaptability to future market trends.
- Sales Data: Despite a nearly 10% decline in cigarette sales last year, Altria's oral tobacco product revenue only increased by less than 1%, indicating the challenges the company faces during its transition, particularly against the backdrop of a steadily declining smoking rate.
- Product Acceptance: While the retail expansion of nicotine pouches may boost revenue, most “on!” and “on! PLUS” products have been available online for some time, suggesting that consumer purchasing habits may not significantly change due to new retail channels, reflecting limitations in market acceptance.
- Dividend Appeal: Altria's forward-looking dividend yield stands at 6.7%, providing a reliable income source among risky assets, and although meaningful growth is limited, the company demonstrates strong management of the gradual decline of its cigarette business, ensuring long-term financial stability.
See More
Altria Group's Strategic Shift to New Products
- Market Expansion: Altria Group's 'on!' nicotine pouch products are expanding retail availability from three states to nationwide following FDA authorization, which is expected to significantly enhance product accessibility and drive sales growth.
- Industry Trends: According to Gallup data, smoking rates in the U.S. have declined from 54% in 1954 to 11% in 2024, highlighting the ongoing contraction of the traditional cigarette market and underscoring the importance of Altria's strategic pivot.
- Revenue Challenges: Despite some growth in oral tobacco product revenue, the overall cigarette sales declined by nearly 10%, indicating that Altria's performance in the alternative product market has not effectively compensated for the decline in its traditional business.
- Dividend Appeal: Altria's forward-looking dividend yield stands at 6.7%, providing an attractive option for income-seeking investors, although future growth potential appears limited, the company has demonstrated effective management of its gradual exit from the cigarette market.
See More
Tobacco Industry Faces Challenges and Transformation
- Cigarette Volume Pressure: The tobacco industry is facing significant challenges with a notable decline in cigarette sales due to inflation and changing consumer preferences, with traditional cigarettes still being a major revenue source, making the ongoing sales decline a considerable threat to the industry.
- Cost Increase Risks: Industry participants are under pressure from high costs associated with key inputs such as tobacco leaf, energy, and labor, while simultaneously increasing investments in the research, development, and commercialization of smoke-free products, further squeezing profit margins.
- Popularity of Smoke-Free Products: With rising health awareness and stricter regulatory frameworks, consumers are increasingly shifting towards smoke-free alternatives like heated tobacco, vapor products, and oral nicotine, driving a gradual transformation in the industry's revenue mix.
- Market Performance Weakness: Despite the tobacco industry growing by 16.1% over the past year, it still underperformed compared to the S&P 500's 18.7% growth, indicating relative weakness within the overall market.
See More
Top Dividend Stocks for Retirees to Consider
- Verizon's Stability: Verizon Communications (VZ) dominates the U.S. wireless market with a 20-year history of dividend increases, currently yielding 5.4% while maintaining a manageable payout ratio of 56% of estimated earnings, making it a reliable choice for retirees dependent on dividend income.
- Altria's Growth Strategy: Altria Group (MO), a Dividend King, continues to thrive despite declining smoking rates by raising prices, offering a 6.32% dividend yield and projected low-single-digit annual earnings growth over the next three years, appealing to investors seeking stable income.
- Chevron's Resilience: Chevron (CVX) has demonstrated strong resilience amid Middle East turmoil, boasting 39 consecutive years of dividend increases with a current yield of 3.27%, and with Brent oil prices hovering around $100, future dividends may see significant upside, making it suitable for retirees.
- Energy Sector Outlook: Despite uncertainties in the Middle East, Chevron plans for at least 10% annualized free cash flow growth through 2030, and with current oil prices, there is potential for increased dividends, ensuring a stable income source for retirees.
See More
Top Dividend Stocks for Retirees: High Yield Recommendations
- Verizon's Stable Income: Verizon Communications has increased its dividend for 20 consecutive years, currently yielding 5.4% with a payout ratio of 56% of estimated earnings, indicating strong financial resilience, making it suitable for retirees seeking stable income.
- Altria's Pricing Strategy: Despite declining smoking rates in the U.S., Altria Group offsets falling cigarette volumes by raising prices annually, boasting a 6.6% dividend yield, with analysts projecting low-single-digit annual earnings growth over the next three years, showcasing its resilience in a mature market.
- Chevron's Growth Potential: Amid the Middle East conflict, Chevron maintains a strong track record with 39 consecutive years of dividend increases, currently yielding 3.4%, and is expected to achieve at least 10% annual free cash flow growth through 2030, highlighting robust profitability in a high oil price environment.
- Diversity in Investment Recommendations: While Verizon is considered a solid investment choice, it was not included in the Motley Fool's list of 10 best stocks, reflecting a diverse market perspective on investment opportunities, urging retirees to choose wisely.
See More
Altria Shares Rise Amid Broader Market Flight to Safety
- Market Flight to Safety: Amid escalating fears of conflict in Iran, Altria (MO) shares rose 2.9%, reflecting investor preference for defensive, high-dividend stocks, with Altria's dividend yield at 6.6%, making it particularly attractive during market turbulence.
- Year-to-Date Recovery: Altria's stock has gained 15% year-to-date, indicating a gradual stabilization after years of regulatory pressure, which has drawn increased investor interest and confidence in the company's future.
- Product Expansion: Altria announced the nationwide retail expansion of On!, a direct competitor to Zyn, which is expected to drive market share gains in the rapidly growing oral nicotine pouch segment, enhancing the company's competitive position in this market.
- Future Outlook: Altria's near-term performance will be influenced by overall market trends and investor sentiment regarding the conflict, with a first-quarter update expected in a month; if the On! Plus rollout shows positive results, the stock could see further gains.
See More
