Altria Group or Altria (NYSE:MO) is not just a great company but a profitable one.
Altria’s profit margins are the envy of most companies.
For example, on a consolidated basis, its gross margins have been north of 60%.
What’s even more amazing is that its operating margins soared beyond 50% in 2020.
And, this was achieved amid a severe pandemic outbreak.
While Altria has done a good job running the business, its stock price has told a different story as of late.
Between 2017 and 2021, Altria’s market capitalization has plunged by about 40%.
Altria was a $150 billion company back in 2017.
However, its recent valuation was only about 90 billion as of Jan 2022.
Is Altria worth this low?
Let’s take a look.
In this article, we are going to look at Altria’s market valuation from a historical perspective.
That said, we will compare its current valuation with the historical values using several ratios, including the price to sales ratio, price to book ratio, price to gross profit ratio, price to operating income ratio, price to earnings ratio and price to cash flow ratio.
Let’s get started.
Altria’s Market Capitalization
Let’s first look at Altria’s market capitalization for the period from 2017 to 2022.
In the last 5 years, Altria’s market cap has plunged from around $150 billion in mid of 2017 to only $90 billion as of Jan 2022.
The 40% decline in Altria’s market cap was partly attributed to the shares buyback that the company has been doing.
Over the past 5 years, Altria has managed to reduce its share outstanding by about 4% from 1.93 billion to 1.84 billion as of the financial period reported in 3Q 2021.
For your information, Altria has stopped buying back shares since fiscal 2020 when the COVID-19 outbreak started but has resumed the stock buyback in fiscal 2021.
While the shares buyback has partly contributed to the shrink in Altria’s market cap, the decline has been mostly driven by the falling stock prices.
Altria’s stock was valued at around $70 per share back in May 2017.
However, this figure has fallen by more than 30% in the last 5 years and was traded at only $50 per share as of Jan 2022.
Altria’s Price To Sales Ratio
In terms of price to sales ratio, Altria was valued at more than 6X its trailing 12-month (TTM) revenue back in 2018.
However, that figure has declined to only 4.4X as of Jan 2022.
In 2020, Altria’s valuation with respect to TTM sales reached only 3.3X, representing nearly a 50% decline from its peak valuation reported in 2018.
As of Jan 2022, Altria’s market valuation with respect to revenue was still considerably low compared to its historical average.
However, Altria had significantly higher sales as of 2021 compared to 2018.
In fact, Altria’s revenues net of excise taxes has grown significantly since fiscal 2020 and have been reaching record highs in fiscal 2021.
Therefore, Altria may have been undervalued at only 4X its TTM sales when it has been able to grow its revenue steadily over the years.
Altria’s Price To Book Ratio
The trend of Altria’s price to book ratio looks completely opposite to the price to sales ratio plot.
Between 2017 and 2022, Altria’s price to book or equity ratio has been on a rise and reached a record high at roughly 30X before a sudden drop to negative after fiscal 3Q 2021.
Altria’s negative price to book ratio was due to the company’s negative equity or book value.
The reason for the expansion and then the negative ratio has been largely due to Altria’s shrinking equity values.
As of the 43rd quarter of 2021, Altria’s equity value or net worth was valued at -$1.3 billion.
Altria used to have an equity or book value of $12 billion back in 2017.
Over the years, Altria’s huge cash dividends and shares buyback has shrunk the equity or net worth of the company.
Altria’s shrinking equity has been further worsened by the drop in profitability in 2020 when the company suffered record losses driven by huge write-offs due to its investment loss in JUUL and Cronos as well as ABI.
Altria’s Price To Gross Profit Ratio
Altria’s market valuation with respect to the company’s TTM gross profit has also decreased over the years and reached only 6.7X as of Jan 2022.
Altria’s stock was traded at a price to gross profit ratio of more than 10X in 2018.
However, this ratio has slumped considerably to only 6.0X during 2020, which was the lowest valuation with respect to gross profit.
Similar to the price to revenue ratio, Altria’s price to gross profit ratio recovered considerably in 2021.
Although the price to gross income valuation multiple had recovered post-COVID period, it was still way below its historical peak.
For your information, Altria had much higher gross profits in 2021 compared to 2018.
Still, Altria’s valuation multiple was relatively low as of Jan 2022 compared to that of 2018.
As such, Altria’s valuation may have been undervalued in the post-COVID age as the valuation was only slightly better than that during the COVID period.
Altria’s Price To Operating Income Ratio
Altria’s price to operating income ratio is having a similar trend as the price to gross profit ratio.
That said, Altria’s price to operating income ratio has slumped to its lowest level at only 7X during 2020.
The ratio has recovered slightly to more than 8X as of Jan 2022.
Altria used to have a price to operating income ratio that averaged around 11.0X in 2018.
Again, Altria had much higher operating profits in 2021 compared to 2018, and the recent valuation multiple has not reflected the company’s operating strength yet.
Therefore, there will be a significant upside to Altria’s stock at the current price point of around $50 per share when the valuation multiple expands.
Altria’s Price To Earnings Ratio
Altria’s price-to-earnings ratio or PE ratio is vastly different from what we have seen so far.
According to the chart, Altria’s PE ratio came in at around 33X as of Jan 2022 based on the net earnings reported in fiscal Q3 2021.
Prior to that, Altria’s price-to-earnings ratio hovered at more than 100X, due mainly to the plummeting net income and net profit which have dived to the negative levels in 2020.
As seen, Altria’s valuation was priced at negative figures when its earnings reached the negative territory.
Again, Altria’s PE ratio had been erratically inconsistent between 2019 and 2020, illustrating the devastating effect of the JUUL and Cronos investment loss on the company’s earnings.
Altria may have operated its core businesses efficiently, it had not been the case when it comes to investments and acquisitions.
However, we have seen that Altria’s net earnings have significantly recovered significantly in 2021.
Altria’s net earnings have slowly recovered and the huge write-offs as a result of its investment loss have already been behind the company.
Therefore, if Altria’s success amid the pandemic persisted, there will be a significant PE ratio multiple expansion in the near future.
Altria’s Price To Adjusted Earnings Ratio
Altria’s adjusted earnings are a non-GAAP measure and are adjusted by the company to exclude certain items that the firm deems non-recurring and non-core related.
For example, Altria’s impairment charge as a result of investment loss in JUUL and Cronos is one such item that has been adjusted in the adjusted net earnings or net profit.
That said, Altria’s price to adjusted earnings ratio reached only 11X as of Jan 2022 based on the fiscal 3Q 2021 financial result, one of the lowest the company has ever seen.
The low PE ratio is due to Altria’s growing adjusted earnings over the years coupled with a declining share price.
Therefore, is Altria undervalued?
I bet it is based on the adjusted PE multiple of only 11X as of Jan 2022.
Altria’s Price To Operating Cash Flow Ratio
In terms of valuation from the perspective of cash flow, Altria’s ratio also came in at roughly 11X with respect to the TTM operating net cash as of Jan 2022.
This figure is one of the lowest numbers since 2018 and was only slightly better than that in 2020.
Historically, Altria’s valuation with respect to operating cash flow hovered at more than 15X in 2018 as shown in the chart.
Keep in mind that Altria’s operating cash flow was much larger in 2021 compared to that of 2018.
Therefore, is Altria’s stock undervalued with respect to the net cash from operating activities?
I bet it is.
Altria’s Price To Free Cash Flow Ratio
Similarly, Altria had an equally strong free cash flow generation as of 2021 compared to all prior years.
However, Altria carried a low valuation multiple with respect to free cash flow as of Jan 2022.
As seen from the chart, Altria’s price to free cash flow ratio was only slightly above 10X as of Jan 2022 based on the fiscal 3Q 2021 financial result.
Historically, Altria managed to gain a price to free cash flow ratio of more than 20X in 2018.
Therefore, Altria’s stock valuation in 2022 was less than half the valuation reported in 2018 while free cash flow has grown much higher in 2021 compared to that of 2018.
Also, even as other businesses suffered amid the pandemic, Altria continued to thrive and generate strong free cash flow.
Is Altria’s stock undervalued with respect to free cash flow?
It certainly is.
Altria’s stock valuation was relatively low from the perspective of a few metrics, including the price to sales ratio, price to gross profit ratio, price to operating income ratio, price to earnings and price to cash flow ratio.
However, Altria’s valuation multiple with respect to these ratios continued to remain low as of Jan 2022 compared to historical ratios, indicating that investors’ sentiments have yet to catch up to the company’s improving financial results reported in 2021.
While there are significant risks associated with buying Altria’s stock, including the slowing cigarette shipment volumes, potential litigations and antitrust, I believe the current market valuation has already priced in these risks.
Moreover, these risks have been known for a long time.
While Altria’s market valuation had slightly improved since 2021, it was only slightly better than that of 2020 when the COVID-19 infectivity was at the top of the chart and was significantly low compared to that prior to 2020.
Therefore, how does Altria’s valuation look as of Jan 2022?
My opinion is that it was still low compared to historical figures.
References and Credits
1. All financial data in this article were obtained and referenced from Altria’s annual and quarterly financial statements which can be found in Altria’s Earnings Releases and Presentations.
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The content in this article is for informational purposes only and is neither a recommendation nor a piece of financial advice to purchase a stock.
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