Altria Group Current Price

Altria Group (NYSE: MO)

Current price (as of 14 September): $62.07

Target price: $67.01

Conclusion: 7.37% undervalued

Company description

Altria Group (“Altria” or “MO”), is a holding company which owns Philip Morris USA, John Middleton, U.S. Smokeless Tobacco Company, Ste. Michele Wine Estates, etc. The company is one of the largest producers of tobacco, cigarettes, and related products in the United States. As of 2017, its revenue was $25.6bn and was comprised of 85.8% smokeable products, 13.2% of smokeless products, and 1.0% of others which include wine. After Altria spun-off Philip Morris International in 2008, the company has mainly operated in the US market and its major brands includes Marlboro, Black & Mild, Copenhagen, and Nu Mark (e-cigarette).

Industry overview

The US tobacco market is estimated to be $101bn as of 2017 and has grown by CAGR of 1.8% for the past five years. While the volume (Q) has fallen at CAGR of 2.1% as the smoking population in the US continued to decrease, the average price per pack (P) increased from $6.6 in 2013 to $7.7 in 2017. According to the industry report, the market is expected to grow even further at CAGR of 2.3% for the next five years through continuous price hikes from producers.

Within the US tobacco market, the e-cigarette segment has been rapidly growing since its introduction in 2006. This particular market is estimated to be $4bn as of 2017 and is expected to grow at CAGR of 22.5% to reach $11.0bn in 2022, accounting for 10% of total tobacco industry. At the same time, the traditional tobacco market is expected to grow at CAGR of 1.1%, meaning that, despite aggressive growth from e-cigarette segment, traditional cigarette market is forecasted to steadily grow at modest rates thanks to continuous price increase and to low elasticity of smokers.

Valuation

We calculated a target price of $67.01 per share which indicates that the stock is undervalued by 7.37% from its fair price. The valuation was mainly performed