Q2 2022 hedge fund letters, conferences and more
Perspectives
The most contentious issue with this stock is that the FDA has moved to ban Juul Labs from selling its devices and types of pods. A federal court recently blocked this ban while Juul labs are appealing. This is a problem for Altria as it currently has a 35% stake in the company worth $1.7B and is causing price compression for its stock. There are various takes someone can make about FDA's ban that can affect Altra's long-term value as an investment.
The first is that the ban on Juul products has already been priced in, meaning that the worst of the selloff is over. Keep in mind that the FDA's announcement also came in at the same time as analysts' downgrades and the FDA's decision to regulate nicotine levels found in tobacco products. The fast selloff could indicate that the stock has fallen to undervalued levels if one does not believe it will fall much further, which leads to the following implication.
A reduction in the amount of nicotine found in tobacco products has been shown in research studies to make it easier for those addicted to nicotine to quit. The alternative argument is that since the nicotine amount is lower, people who do not want to quit will be forced to buy more nicotine products to feel like their cravings have been satiated. The research seems to suggest that this could lead nicotine companies to lose more customers for life, while customers who do not quit will buy more products over the long term.
The final perspective to consider is whether or not the FDA ban on Juul products will ultimately be successful. The ban will be contentious as other nicotine products are still being sold, such as cigarettes, so it's arguable why Juul's products should be banned. The counter-argument to this is that Juul could be seen to target a younger demographic, especially with some types of flavored pods. Research studies also show that vaping significantly increases the chances of people taking up smoking as an additional habit alongside vaping and that vaping introduces nicotine consumption in people who have not smoked before.
Altria Group Compared to Phillip Morris International
Philip Morris International (NYSE:PM) could be considered a close rival of Altria Group and is therefore worth comparing. PM notably has a market cap twice as large as MO at $147.26B compared with $74.52B. The result is that we can expect MO to be more volatile than PM and provide more significant growth opportunities. PM has also consistently beaten MO in its returns to shareholders except for over the last ten years. Over the previous ten years, PM delivered a 72.85% return, while MO delivered 107.62%. PM gave a 5.75% return for the last five years, while MO had a negative return of -21.37%.
Both PM and MO have substantial dividends, but MO comes out decisively on top. MO has a five-year dividend CAGR growth of 8.09%, while PM sits at 3.75%. The 4-year average yield is also higher for MO than PM, as it currently has a yield of 6.99% compared with 5.50%. Another draw card for MO is that since its selloff, it is relatively inexpensive when compared with PM. MO has an FWD P/E ratio of 8.71, while PM sits at 17.29.
Article by Matthew North, MarketBeat
Updated on
