In a market characterized by volatility and uncertainty, Altria has emerged as a compelling defensive investment option for income-focused investors. Despite the S&P 500’s impressive performance, climbing approximately 16% this year and approaching its historical peak, concerns about high valuations loom large. Currently trading at around 31 times earnings, many market analysts warn that pressures from persistent inflation, rising Treasury yields, geopolitical tensions, and unpredictable policy changes could lead to a reevaluation of stock values.
Notably, much of the S&P 500’s ascent has been propelled by the “Magnificent Seven” tech giants—Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla—collectively commanding more than a third of the index’s overall market capitalization. However, beyond this tech-dominated façade lies a diverse pool of undervalued stocks, including Altria Group, which presently trades 14% below its all-time high.
Altria, formerly known as Philip Morris, is a major player in the domestic tobacco market, best known for its Marlboro brand. Following its spin-off of the international segment in 2008, the company’s focus shifted toward stabilizing its revenue from a shrinking domestic market. While adult smoking rates in the United States have plummeted to their lowest point in decades, and smokeable product shipments have decreased significantly from 103.45 billion units in 2019 to 70.34 billion in 2024, Altria has still managed to achieve modest revenue growth of 0.7% per annum over this same period.
Key drivers of this growth include strategic price increases, cost-cutting measures, share buybacks, and a shift toward smoke-free product offerings such as e-cigarettes and nicotine pouches. In 2023, Altria undertook a pivotal acquisition by purchasing leading e-cigarette manufacturer Njoy for $2.8 billion, with expectations that it will positively impact its earnings growth by 2026.
Looking ahead, Altria aims to substantially reduce its reliance on traditional smoking products, targeting $5 billion in smoke-free revenues by 2028, which would represent nearly a quarter of its projected $20.4 billion revenue for 2024. The company is concurrently pursuing cost-saving measures through its “Optimize and Accelerate” initiative, aiming for at least $600 million in annual savings over the next five years, alongside a new $1 billion buyback program.
Financial analysts project a 4% growth in adjusted earnings per share (EPS) for Altria from 2024 to 2027, indicating that its current trading price of around $59 presents a low valuation at just 11 times next year’s adjusted earnings. The company has consistently increased its dividend payout since its spin-off, currently maintaining a substantial forward yield of 7.2%, outpacing the 10-Year Treasury yield of 4.1%.
Given its undervalued status and robust dividend yield, Altria stands to attract more defensive investors, particularly if broader market conditions begin to normalize. While it may not rival the explosive growth observed in the technology sector, Altria remains a steadfast option for those seeking reliable income within the S&P 500.
