These days, investors are looking for fruitful opportunities that offer high margins of safety. Markets have been restless since the pandemic, and new fears are constantly emerging. From the ongoing conflict in Ukraine to high inflation, slowing global economic growth and recent bankruptcies of prominent financial institutions, markets continue to be plagued by persistent volatility.
One investment that appears to offer a much-needed margin of safety and whose future performance should have little correlation with economic headwinds is Altria Group (NYSE:MO). In my view, Altria’s ability to provide investors with stable returns and large tangible returns on capital amid the ongoing market turmoil should constitute a strong safety net for a significant upside. Therefore, I am bullish on stocks.
Unfazed Sales Despite Growing Concerns
Historically, tobacco companies like Altria have been closely associated with many concerns. Tobacco stocks have been bearish in the market for decades because of fears about a decline in the number of smokers.
In its latest earnings report, Altria once again demonstrated that it can deliver strong sales and profit growth, defying the mainstream narrative of its coming demise. Fourth quarter net sales of 6.11 billion In dollars, it was down just 2.3% compared to the same period last year.
The slight decline in net sales was due to lower shipment volumes, partially offset by higher pricing and lower promotional spending. So while sales of smokeable products have dropped significantly, the situation is far from the catastrophic situation that the market tends to push.
Altria’s smokable products revenue for the full year was down 1.7%, with price increases almost fully offsetting a 9.7% decline in domestic tobacco shipments. Of course, raising prices in response to declining demand for cigarettes is not a sustainable strategy. It can last so long. However, given that there will always be a certain amount of smokers, there should be a point at which Altria’s shipments stabilize and the need for regular price increases is eased.
profits are growing
Assessing the company’s profitability makes much more sense, as no one is actually buying Altria because of its potential for revenue growth. in the end, Altria Profitability determines future dividend capacity, a factor that largely determines future shareholder returns.
Adjusted diluted earnings per share increased 8.3% to $1.18 in the fourth quarter primarily due to lower share count, higher operating income and lower interest expense. Strong profitability in the fourth quarter and throughout 2022 boosted his full-year adjusted diluted earnings per share by 5% to $4.84.
Altria’s strong cash flow, cost-reduction initiatives, ongoing deleveraging and share repurchases should further boost earnings per share as indicated in management’s fiscal 2023 guidance. Management expects adjusted diluted earnings per share this year to range from $4.98 to $5.13, suggesting growth of 3% to 6%.
Overall, Altria’s ability to generate growth earnings with a high degree of predictability in such an uncertain environment is a very encouraging sign for the continued expansion of the company’s already hefty dividend payout. This explains why stocks offer a large margin of safety.
Dividends and share buybacks offer a broad safety net
Altria’s hefty dividend A buyback should provide current shareholders with a wide margin of safety. Dividends provide a tangible return on capital that improves predictability regarding the future return potential of a stock. Furthermore, the 8.1% yield essentially prohibits the bears from shorting the stock (which would be incredibly expensive to do so). This is reflected in Altria’s short interest rate of less than 1%, despite the negative sentiment surrounding the stock.
![](https://tipranksblog.wpenginepowered.com/wp-content/uploads/2023/03/Screenshot_8-2-1024x276.png)
On the other hand, Altria’s continued share buybacks should also contribute to the overall margin of safety built into the stock. This is because it means more stock purchases creating the floor (in addition to contributing to earnings per share growth and thus better dividend coverage). Stock price. This can be observed in the fact that Altria’s shares trade with considerably lower volatility compared to the market as a whole, as indicated by the approximately 0.6 beta for the stock.
Is Altria Stock a Buy, According to Analysts?
Wall Street has mixed feelings about the Altria Group investment deal, whose stock has a consensus rating of Hold, based on two buys, four holds, and one sell allotted over the past three months. And it seems. At $47.42, the average Altria Group’s target price Implying an upside potential of around 3.3%.
![](https://tipranksblog.wpenginepowered.com/wp-content/uploads/2023/03/image-476-1024x343.png)
Takeaway
As Wall Street sentiment suggests, Altria is a polarizing stock. That said, despite the concerns surrounding tobacco companies, the company’s profitability and return on capital prospects appear to be at their best ever, and we can’t ignore them. Altria delivered its highest-ever adjusted earnings per share last year, but management’s optimistic guidance points to another record in fiscal 2023.
Meanwhile, the 8.1% yield and continuous buybacks provide current investors with a wide margin of safety while increasing the predictability of the stock’s future returns. This set of features is especially valuable in today’s volatile market conditions, and we believe investors will finally recognize Altria’s quality and take the stock to a higher standard.