MO: Altria Stock Research
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Summary of Operations
Altria is a holding company whose businesses mainly serve tobacco products, including the famous cigarette brand Marlboro. Their current portfolio consists of cigarettes, cigars, oral nicotine pouches, “innovative” tobacco products, and wine. The smokable products are dominant, comprising 88% of Altria’s 2020 revenues. About 80% of free cash flow is paid as a dividend, and the company intends to maintain this payout ratio (although based on EPS, not FCF) going forward. The balance sheet is very fragile.
Strategy
Nicotine addicts are a source of income for the foreseeable future, and their dividend payout ratio suggests they are okay with that and base their strategy on the certainty of those cash flows as they are. Altria’s plan seem to be as simple as:
Sell an addictive product that isn’t illegal.
Be proactive in the regulatory process so that it doesn’t become illegal.
Growth and the Future
In their annual report, Altria seems aware that their business is a black sheep in the private sector. Compared to just about any other company, they had a lot more detailed reasons to be worried about regulations, excise taxes, and litigation in their risk factors. They also noted that culture is turning against tobacco more and more, while also noting that they have no good way to compete with the vape (sub)industry. They hope to switch to 100% smokeless products by the end of the decade, but with so much paid out in dividends and so little investment in capex, growth can only come from cutting expenses or raising prices.
Valuation
This is best to value as a dividend stock, since that’s where the cash flows are going and because it’s yield is around 7%.
Growth Assumptions: 5%
Intrinsic Value Per Share: $41
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