Altria FDA Recovery
Updated
Altria is trading at a steal right now.
Following the popularity and subsequent crackdown on JUUL, Altria's stock has tumbled ~45% from its high in 2017. The barrage of lawsuits and FDA restrictions has frightened investors, causing shares to plummet. A $29 billion debt and a $731 million loss on a Cronos Cannabis investment have increased pessimism regarding MO's management. Furthermore, tobacco demand has been decreasing since the '70s. It would seem that Altria is an inflexible, mismanaged giant in a dying industry.
Although Altria's revenue has only increased from $24.6 billion to $25.1 billion from 2012-2019, its operating cash flow grew from $3.9 billion to $7.8 billion. This means that although MO's revenue growth has been pretty stagnant, it is rapidly increasing its operational capacity. Furthermore, a generation is already addicted to salt nicotine, and while they may not buy JUUL's product, Altria owns the formula for salt nicotine and most of the mechanisms within salt nicotine devices. This means regardless of what salt nicotine device is purchased, MO is getting a cut.
The $29 billion debt would usually be of concern, however, Altria's debt schedule has them repaying at most $3 billion annually. This means that MO can easily cover its liabilities/expenses without needing to cut dividends and still have cash left over to play with. The dividend currently has a yield of 8.22%. Not many companies can boast a sustainable 8.22% dividend yield and a potential for share growth.
Although MO has taken such a heavy loss with their CRON investment, they still maintain a 45% ownership of the largest cannabis company by revenue. I suspect that this loss will be temporary, and as legal recreational-use marijuana continues to grow, the entire industry will expand. This expansion will make MO's investment profitable in the long term.
With a trailing-twelve-month PE Ratio of 9.56, MO's current share price is cheap when compared to its earnings.
Price has found support at the 200 EMA on the all-time frame. It is currently pushing on the top side of the wedge, and tomorrow's earnings could serve as a catalyst for a breakout.
TLDR: Cash flow increased from $3.9 billion to $7.8 billion from 2012-2018. Holds significant market power using its existing patents. Holds 45% of the largest cannabis company by revenue. Has enough cash to pay existing debts without touching dividends. Trailing 12 month PE Ratio of 9.56. Plenty of room for growth. Possible breakout soon.
"I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty." (Warren Buffett)
Following the popularity and subsequent crackdown on JUUL, Altria's stock has tumbled ~45% from its high in 2017. The barrage of lawsuits and FDA restrictions has frightened investors, causing shares to plummet. A $29 billion debt and a $731 million loss on a Cronos Cannabis investment have increased pessimism regarding MO's management. Furthermore, tobacco demand has been decreasing since the '70s. It would seem that Altria is an inflexible, mismanaged giant in a dying industry.
Although Altria's revenue has only increased from $24.6 billion to $25.1 billion from 2012-2019, its operating cash flow grew from $3.9 billion to $7.8 billion. This means that although MO's revenue growth has been pretty stagnant, it is rapidly increasing its operational capacity. Furthermore, a generation is already addicted to salt nicotine, and while they may not buy JUUL's product, Altria owns the formula for salt nicotine and most of the mechanisms within salt nicotine devices. This means regardless of what salt nicotine device is purchased, MO is getting a cut.
The $29 billion debt would usually be of concern, however, Altria's debt schedule has them repaying at most $3 billion annually. This means that MO can easily cover its liabilities/expenses without needing to cut dividends and still have cash left over to play with. The dividend currently has a yield of 8.22%. Not many companies can boast a sustainable 8.22% dividend yield and a potential for share growth.
Although MO has taken such a heavy loss with their CRON investment, they still maintain a 45% ownership of the largest cannabis company by revenue. I suspect that this loss will be temporary, and as legal recreational-use marijuana continues to grow, the entire industry will expand. This expansion will make MO's investment profitable in the long term.
With a trailing-twelve-month PE Ratio of 9.56, MO's current share price is cheap when compared to its earnings.
Price has found support at the 200 EMA on the all-time frame. It is currently pushing on the top side of the wedge, and tomorrow's earnings could serve as a catalyst for a breakout.
TLDR: Cash flow increased from $3.9 billion to $7.8 billion from 2012-2018. Holds significant market power using its existing patents. Holds 45% of the largest cannabis company by revenue. Has enough cash to pay existing debts without touching dividends. Trailing 12 month PE Ratio of 9.56. Plenty of room for growth. Possible breakout soon.
"I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty." (Warren Buffett)
Note
Altria just announced a $2 billion stock buyback. Amazing sign for bulls.Note
The government will probably never allow tobacco companies to fail.Since cigarettes are an inelastic good, meaning the amount consumed is not sensitive to changes in costs, tobacco sales produce a significant amount of revenue to the United States government through taxes. The government's $12.46 billion tax revenue provides a dependable source of income that they are likely to not want to give up. In addition, Altria spent $10.45 million on lobbying in 2019, maintaining significant influence on legislation involving tobacco consumption.
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