Investors navigating the dynamic tobacco industry often find themselves at a crossroads with two major players: Altria Group Inc MO and British American Tobacco PLC BTI aka BAT.
As global trends, regulations and consumer preferences evolve, strategic insights into Altria and BAT are essential for investors trying to figure out which stock is smoking hot.
Altria reported its fourth-quarter earnings today, recording a surprising increase of 9.26% for earnings and 7.58% for revenue. The stock has been trading higher on the beat. BAT’s fourth-quarter results are expected on Feb. 12.
Both Altria and British American Tobacco recognize the changing landscape of the tobacco industry, which is anticipating a decline in global smoking rates by 2025. Consequently, both companies are strategically preparing for a future where traditional tobacco usage diminishes, focusing on alternative products such as vaping and tobacco-heating systems.
Different Strategic Approaches
Altria has been leveraging its rights to market the IQOS tobacco-heating system. It has also diversified into other “vice” industries, including investments in Anheuser-Busch and cannabis company Cronos. BAT, on the other hand, has expanded into various product categories like vaping, aiming to mitigate the impact of declining cigarette consumption.
Financial Health and Profitability
Altria demonstrates superior profitability, with higher operating and net profit margin rates over the past 12 months compared to BAT. Altria turns 42.6% of its revenue into net earnings, while BAT converts around 31%. Additionally, Altria maintains a more favorable debt position, with lower interest payments relative to revenue compared to BAT. Altria’s efficient debt management is a notable strength over BAT.
Dividend Yield Comparison
Source: Data and chart – Benzinga
Altria boasts a higher dividend yield with an annualized forward dividend yield of 9.77%, exceeding BAT’s yield of 9.47%. The sustainability and attractiveness of dividends remain crucial factors for investors, given the limited growth potential in the tobacco industry. Altria’s bigger dividend becomes a compelling reason for potential investors, emphasizing the significance of consistent returns, especially when growth prospects are limited.
Valuation Comparison
Looking at multiples, Altria appears to offer better value on a forward earnings basis, relative to BAT. Trailing earnings, however, peg BAT as the better stock.
Data compiled from Yahoo Finance
While Altria appears to be a better dividend stock and attractive on earnings multiple basis, Wall Street analysts see more upside associated with BAT stock.
Data compiled from Yahoo Finance
While Altria stock offers a 16.75% upside from current levels, British American Tobacco stock comes with a 22.33% upside.
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