Zacks Report Date: October 25, 2023

Altria Group, Inc. (MO) Long Term: 6-12 Months Zacks Recommendation: Neutral
(Since: 05/01/19)
$42.54 (Stock Price as of 10/24/2023)
Prior Recommendation: Underperform
Price Target (6-12 Months): $45.00
Short Term: 1-3 Months Zacks Rank: (1-5) 4-Sell

Zacks Style Scores: VGM:D

Value: B Growth: F Momentum: D

Summary Price, Consensus & Surprise(1)

Altria, which recently acquired NJOY Holdings, has
outperformed the industry in the past one year. The company
has been gaining from its pricing power. In the second quarter
of 2023, higher pricing offered respite to overall revenues,
which were otherwise hurt by soft volumes. Net revenues fell
0.5% year over year, mainly due to reduced net revenues in
the Smokeable Products unit. In the Smokeable Products
segment, domestic cigarette shipment volumes tumbled 8.7%
due to the industry’s decline rate and retail share losses. The
inflationary landscape has been denting consumers’
discretionary income, which is hurting industry volumes.
However, Altria remains optimistic about its journey toward a
smoke-free future. To this end, the company’s investment in
on! is yielding well, with shipment volumes up about 50% in
the second quarter.

Data Overview Sales and EPS Growth Rates (Y/Y %)(1)

52 Week High-Low $51.57 - $40.91
Sales EPS
20 Day Average Volume (sh) 6,972,794

Market Cap $75.5 B

YTD Price Change -6.9%

Beta 0.59

Dividend / Div Yld $3.92 / 9.2%

Industry Tobacco

Zacks Industry Rank Bottom 12% (222 out of 251)

Last EPS Surprise 0.0% Sales Estimates (millions of $)(1)

Q1 Q2 Q3 Q4 Annual*
Last Sales Surprise -0.2%

EPS F1 Est- 4 week change -0.2% 2024 4,857 E 5,540 E 5,628 E 5,277 E 21,229 E
2023 4,763 A 5,438 A 5,480 E 5,119 E 20,813 E
Expected Report Date 10/26/2023
2022 4,819 A 5,374 A 5,412 A 5,083 A 20,688 A
Earnings ESP -0.8%
EPS Estimates(1)
P/E TTM 8.6 Q1 Q2 Q3 Q4 Annual*

P/E F1 8.5 2024 1.18 E 1.31 E 1.37 E 1.27 E 5.15 E

PEG F1 2.7 2023 1.18 A 1.31 A 1.29 E 1.19 E 4.99 E

2022 1.12 A 1.26 A 1.28 A 1.18 A 4.84 A
P/S TTM 3.0
*Quarterly figures may not add up to annual.

1) The data in the charts and tables, including the Zacks Consensus EPS and sales estimates, is as of 10/24/2023.
2) The report's text and the price target are as of 10/25/2023.

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 Overview
Altria Group has been evolving with the changing industry dynamics.
Given the rising health consciousness and stern government regulations
to discourage smoking, this tobacco behemoth has been moving beyond
traditional cigarettes and expanding in the smokeless category. We note
that revenues from the oral product category have been steadily rising
on the back of growing popularity for reduced risk products.

This Richmond-based company specializes in cigarettes, smokeless

products and wine. It is the holding company for Philip Morris USA, Inc.
(PM USA), U.S. Smokeless Tobacco Company LLC (UST), John
Middleton Inc., Philip Morris Capital Corporation (PMCC) and Helix
Innovations. Its service companies include Altria Client Services and
Altria Group Distribution Company.

At Dec 31, 2019, Altria had an approximate 10.1% ownership in

Anheuser-Busch InBev SA/NV (AB InBev or ABI). It also holds
investments in JUUL and Cronos Group. Altria concluded the buyout of
NJOY Holdings, Inc on Jun 1, 2023. Financial results for NJOY will be
reported under Altria’s “All Other" category from the second quarter of
2023.

Altria reports under the following segments on the basis of products.

The Smokeable Products (89% of 2Q23 Sales) segment comprises

mainly of PM USA, sells major brands like Marlboro cigarettes, Virginia As of 10/24/2023
Slims cigarettes and Parliament cigarettes.

The Oral Tobacco Products (11%) segment has been benefiting from the inclusion of on! — a popular tobacco-derived nicotine pouch product.

The All Other segment holds Altria's investments in finance leases, principally in transportation (including aircraft), power generation and
manufacturing equipment and facilities.

Altria recently announced that a subsidiary entered an agreement with a subsidiary of Philip Morris International related to the IQOS. Per the
deal, Altria will receive cash worth around $2.7 billion in exchange for giving exclusive U.S. commercialization rights for the IQOS, from Apr 30,
2024.

Products of the company are mainly sold through distributors, wholesalers and large retail chains.

As of 10/24/2023

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 Reasons To Buy:
Strong Pricing – an Upside: Altria has been benefiting from its strong pricing power, which has The company gains
helped the company stay firm, even amid soft cigarette shipment volumes and times of higher taxes.
Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers
from strategic pricing
tend to absorb price increases owing to the addictive quality of cigarettes. In the second quarter of efforts. Moreover, it
2023, higher pricing offered respite to revenues across the Smokeable Products and Oral Tobacco has been taking
categories, which were otherwise hurt by lower volumes. Higher pricing aided the adjusted operating robust strides to
companies income (OCI) in both segments. Continuation of such trends is likely to remain an upside
for Altria.
expand in the oral
tobacco products
After considering the buyout of NJOY Holdings, Inc. (concluded on Jun 1, 2023), Altria envisions the space.
full-year 2023 adjusted EPS in the band of $4.89-$5.03, calling for 1-4% growth from the year-ago
period’s adjusted EPS of $4.84. Shares of Altria have gained 0.5% over the past one year, compared
with the industry’s decline of 0.6%.

Efforts to Expand Oral Tobacco Products & Other Categories: There has been a general shift among consumers toward several reduced
risk products (RRPs) or smoke-free products due to serious health hazards of smoking cigarettes. Altria has been responding to the changing
market scenario by offering several oral tobacco, e-vapor and heated tobacco products. Altria (through its subsidiary Helix Innovations) has
full global ownership of on! — a popular tobacco-derived nicotine (TDN) pouch product. Management believes that on! is a worthwhile
addition to Altria’s smokeless portfolio, as oral TDN products are gaining popularity in the United States owing to their low-risk claims.
Management continues to expand the manufacturing capacity as well as the commercial availability of the product. Net revenues in the Oral
Tobacco Products segment rose 2.3% from the year-ago quarter’s level to $680 million. The upside can be attributed to improved pricing.
During the second quarter, on! reported shipment volumes grew roughly 50%.

The company’s strategic deal with JT Group, which includes a joint venture for the U.S. commercialization of heated tobacco stick products is
noteworthy. The deal was announced in October 2022. Apart from this, Altria is undertaking efforts to expand in the cannabis industry. This is
evident from the acquisition of stakes of the Canadian cannabis company, Cronos Group. The company remains committed to the heated
tobacco category and believes that it can play an important role in transitioning smokers to a smoke-free future.

Shareholder-Friendly Moves: Altria looks strong on the share buyback and dividend payout front. The company repurchased 10.4 million
shares for $472 million in the second quarter of 2023. As of Jun 30, 2023, Altria had shares worth $528 million remaining under its repurchase
program, which is anticipated to be concluded by Dec 31, 2023. In the second quarter, the company paid out dividends of $1.7 billion. In the
first half of 2023, it paid out dividends worth $3.4 billion. Altria maintains a long-term dividend payout ratio goal of about 80% for adjusted
earnings per share (EPS).

We note that the company currently has a dividend payout of 76% and a free cash flow yield of 11.3%. With an annual free cash flow return
on investment of nearly 30%, ahead of the industry’s 13.1%, the dividend payout is likely to be sustainable. Altria’s long-term debt as of Jun
30, 2023 was roughly $24 billion, nearly in line with the first quarter of 2023.

2028 Goals: Altria highlighted its 2028 Enterprise Goals at its 2023 Investor Day. These goals take into consideration the NJOY buyout. Altria
targets generating mid-single-digit adjusted EPS growth through 2028 (on a compounded annual basis). It targets annual dividend growth in
the mid-single digits through 2028. The company plans to maintain a debt-to-consolidated EBITDA ratio of roughly 2. Further, Altria plans to
maintain a total adjusted OCI margin of at least 60% in the next five years. Finally, it intends to maintain its leadership position in the U.S.
tobacco space. Moreover, U.S. smoke-free volumes are expected to grow by at least 35% from the 2022 level of 800 million units.
Management targets nearly doubling its smoke-free net revenues to $5 billion from the 2022 level.

Strong E-Vapor Category: Within the smoke-free category, management is exploring ways to best compete in the significant e-vapor
category. Per the second-quarter earnings call, e-vapor remains the biggest smoke-free category in the United States – being the most
successful in shifting smokers away from cigarettes. The acquisition of NJOY Holdings is noteworthy in this respect, with NJOY ACE being
the only pod-based e-vapor product with marketing authorization from the FDA at present. Altria concluded the buyout of NJOY Holdings, Inc
on Jun 1, 2023. Management remains committed to implementing its commercial agenda for NJOY in the second half of 2023.

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 Reasons To Sell:
Soft Smokeable Volumes Hurt Q2 Revenues: In the second quarter of 2023, Altria’s net Increased inflation has
revenues decreased 0.5% year over year to $6,508 million, mainly due to reduced net been causing consumers
revenues in the smokeable product unit. After deducting excise taxes, revenues were up to alter their buying
1.2% to $5,438 million. patterns, which has been
weighing on cigarette
In the Smokeable Products segment, net revenues declined 30.9% year over year to $5,820 industry volumes. These
million due to the reduced shipment volume and increased promotional investments, partly factors lingered in the
compensated by greater pricing. Revenues, net of excise taxes, climbed 0.9%. Domestic second quarter of 2023.
cigarette shipment volumes tumbled 8.7%, mainly due to the industry’s decline rate and retail
share losses, partly countered by trade inventory movements. The industry’s decline and
retail share losses were a result of macroeconomic pressure on ATC’s disposable income.
On adjusting for trade inventory movements and other factors, the total estimated domestic cigarette industry volume fell an estimated 7.5%.

High Costs: Management’s bottom-line view for 2023 takes into account planned investments associated with costs to improve the digital
consumer engagement system, and enhanced smoke-free product research, development and marketplace activities to support Altria’s
smoke-free products.

Macroeconomic Uncertainties: In its second-quarter earnings release, management stated that the overall cigarette industry has been
bearing the brunt of the inflationary environment, which has affected Adult Tobacco Consumers’ (“ATC”) spending patterns. As the external
landscape remains dynamic, Altria continues assessing economic factors like elevated inflation, higher interest rates, global supply-chain
hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable income. Apart from this,
cigarette shipment volumes in general have been affected by anti-tobacco campaigns and increased consumer awareness regarding the
harmful impacts of tobacco consumption. Regulatory hurdles (discussed below) are also a vital factor limiting the marketing of cigarettes,
thereby adversely impacting its sales volume.

Regulatory Restrictions on Tobacco: Government bodies across different nations are imposing restrictions on tobacco companies. The
U.S. Food and Drug Administration (FDA) has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to
dissuade customers from smoking. Also, per court orders, Altria and other cigarette manufacturers have been directed to put up self-critical
advertisements on television and newspapers to dissuade customers from smoking. The FDA had also earlier announced that tobacco
makers must seek marketing authorization for any tobacco product introduced after Feb 15, 2007.

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 Last Earnings Report
Altria's Q2 Earnings Meet Estimates, Revenues Down Y/Y FY Quarter Ending 12/31/2022

Altria Group delivered second-quarter 2023 results. Adjusted earnings came in at $1.31 per Earnings Reporting Date Aug 01, 2023
share, which jumped 4% year over year and matched the Zacks Consensus Estimate. The
Sales Surprise -0.16%
year-over-year increase was backed by the reduced number of shares outstanding, partly
EPS Surprise 0.00%
negated by a decline in the net periodic benefit income.
Quarterly EPS 1.31
Net revenues fell 0.5% year over year to $6,508 million, mainly due to reduced net revenues in Annual EPS (TTM) 4.95
the smokeable product unit. After deducting excise taxes, revenues were up 1.2% to $5,438
million. The Zacks Consensus Estimate for revenues was pegged at $5,447 million.

Segment Information

Smokeable Products: Net revenues in the category decreased 0.9% year over year to $5,820 million due to the reduced shipment volume and
increased promotional investments, partly compensated by greater pricing. Revenues, net of excise taxes, climbed 0.9%. Domestic cigarette
shipment volumes tumbled 8.7%, mainly due to the industry’s decline rate and retail share losses, partly countered by trade inventory
movements. The industry’s decline and retail share losses were a result of macroeconomic pressure on ATC’s disposable income.

On adjusting for trade inventory movements and other factors, the total estimated domestic cigarette industry volume fell an estimated 7.5%.
Altria’s reported cigar shipment volumes rose 7.6%.

Oral Tobacco Products: Net revenues in the segment rose 2.3% from the year-ago quarter’s level to $680 million. The upside can be attributed
to improved pricing, partly negated by the increased percentage of on! shipment volumes relative to MST (compared with the year-ago period),
reduced shipment volumes and elevated promotional investments. Revenues, net of excise taxes, grew 2.8%.

Domestic shipment volumes fell 1.7%, mainly due to retail share losses. This was somewhat offset by the industry’s growth rate, calendar
differences and trade inventory movements. On adjusting for calendar differences and trade inventory movements, the oral tobacco product
segment’s shipment volume declined by an estimated 2.5%.

Guidance

Altria reiterated its guidance for 2023. The company envisions the adjusted EPS in the range of $4.89-$5.03, suggesting growth of 1-4% from the
$4.84 recorded in 2022. As the external landscape remains dynamic, Altria continues assessing economic factors like elevated inflation, higher
interest rates, global supply-chain hurdles and ATC dynamics, such as purchasing patterns, the adoption of smoke-free products and disposable
income.

The bottom-line view also considers planned investments associated with costs to improve the digital consumer engagement system, and
enhanced smoke-free product research, development and marketplace activities to support the company’s smoke-free products.

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 Recent News
Altria Hikes Dividend - Aug 24, 2023

Altria Group raised its quarterly dividend by 4.3% taking it to 98 cents per share. This is payable on Oct 10, 2023 to stockholders of record as on
Sep 15.

Valuation
Altria shares are down 0.8% in the year-to-date period and up 0.5% over the trailing 12-month period. Stocks in the Zacks sub-industry are down
7.4% in the year-to-date period, while the Zacks Consumer Staples sector decreased 12.4%. Over the past year, the Zacks sub-industry is down
0.6%, while the sector declined 6%.

The S&P 500 index is up 12.6% in the year-to-date period and 12.8% in the past year.

The stock is currently trading at 8.3X forward 12-month earnings, which compares to 9.48X for the Zacks sub-industry, 15.91X for the Zacks
sector and 18X for the S&P 500 index.

Over the past five years, the stock has traded as high as 15.4X and as low as 7.05X, with a 5-year median of 9.64X. Our Neutral
recommendation indicates that the stock will perform in-line with the market. Our $45 price target reflects 8.72X forward 12-month earnings.

The table below shows summary valuation data for MO

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 Industry Analysis(1)Zacks Industry Rank: Bottom 12% (222 out of 251) Top Peers(1)
Company (Ticker) Rec Rank
British American Tobacco p.l.c. (BTI) Neutral

Anheuser-Busch InBev SA/NV (BUD) Neutral

Imperial Tobacco Group PLC (IMBBY) Neutral

JAPAN TOB (JAPAY) Neutral

Philip Morris International Inc. (PM) Neutral

Constellation Brands Inc (STZ) Neutral

Turning Point Brands, Inc. (TPB) Neutral

Vector Group Ltd. (VGR) Neutral

Industry Comparison(1)Industry: Tobacco Industry Peers

MO X Industry S&P 500 BTI JAPAY PM

Zacks Recommendation (Long Term) Neutral - - Neutral Neutral Neutral

Zacks Rank (Short Term) - -

VGM Score - -
Market Cap 75.49 B 9.98 B 29.84 B 59.93 B 0.00 M 141.00 B
# of Analysts 7 3 15 3 2 7
Dividend Yield 9.21% 4.45% 1.76% 9.36% 4.02% 5.72%
Value Score - -
Cash/Price 0.01 0.06 0.05 0.09 NA 0.02
EV/EBITDA 11.38 8.99 12.77 NA NA 13.49
PEG Ratio 2.73 2.12 2.01 NA NA 1.96
Price/Book (P/B) NA 1.14 2.98 0.66 1.49 NA
Price/Cash Flow (P/CF) 8.50 7.27 11.90 6.07 8.25 13.41
P/E (F1) 8.59 8.55 16.51 6.28 12.95 14.68
Price/Sales (P/S) 3.03 0.96 2.35 NA NA 2.01
Earnings Yield 11.73% 11.66% 6.02% 15.94% 7.68% 6.81%
Debt/Equity -6.37 0.44 0.62 0.51 0.24 -5.57
Cash Flow ($/share) 5.00 4.14 8.89 4.90 1.39 6.77
Growth Score - -
Hist. EPS Growth (3-5 yrs) 5.13% 4.14% 9.69% NA -0.35% 4.14%
Proj. EPS Growth (F1/F0) 3.10% 5.02% 6.38% 3.27% -6.32% 3.51%
Curr. Cash Flow Growth 2.47% 1.22% 5.91% 1.22% 5.25% 0.04%
Hist. Cash Flow Growth (3-5 yrs) 5.91% 5.07% 9.31% 6.74% 0.55% 4.22%
Current Ratio 0.37 1.22 1.24 0.93 1.90 0.89
Debt/Capital NA% 33.83% 39.63% 33.83% 19.33% NA
Net Margin 27.40% 4.33% 11.76% NA 16.84% 11.41%
Return on Equity -225.61% -84.21% 17.68% NA 12.24% -129.48%
Sales/Assets 0.69 0.73 0.55 NA 0.41 1.13
Proj. Sales Growth (F1/F0) 0.60% 0.29% 4.83% 2.60% -6.80% 11.50%
Momentum Score - -
Daily Price Chg 0.97% 0.05% 0.73% -0.23% 0.17% -0.10%
1 Week Price Chg 0.12% 0.22% -2.87% 0.13% 0.62% 0.33%
4 Week Price Chg 1.53% -2.27% -0.60% -7.24% -0.09% -0.26%
12 Week Price Chg -5.84% -10.77% -7.19% -10.77% 6.11% -7.55%
52 Week Price Chg -7.00% -7.00% 10.07% -23.44% 37.41% 2.63%
20 Day Average Volume 6,972,794 163,724 2,133,162 4,792,412 61,913 4,520,248
(F1) EPS Est 1 week change 0.00% 0.00% 0.00% 0.00% 0.00% 2.97%
(F1) EPS Est 4 week change -0.20% 0.00% 0.00% -2.34% 0.00% 0.42%
(F1) EPS Est 12 week change 0.27% -1.52% 0.34% -1.52% -2.75% 0.44%
(Q1) EPS Est Mthly Chg -0.83% -0.83% 0.00% NA NA -8.27%

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