I’m having Claude (not fun Claude – no room!) run the base analysis using the Quarterly Report and the Conference call (MO, in this case) and then letting Shelbot add new information and perform a valuation:
👺 Based on reviewing the 10-Q, earnings call transcript, and analyst reports on Altria’s Q3 2023 results, here is a full analysis of the company’s current situation and outlook:
Financial Performance
– Q3 revenue of $6.3B, down 4% year-over-year, missed expectations by $155M
– Q3 adjusted EPS of $1.28, down 2% YoY, missed by $0.02
– For the first 9 months, revenue fell 2.5% and adjusted EPS grew 3.3%
– Full year adjusted EPS guidance narrowed to $4.91-$4.98 (1.5-3% growth), lowering midpoint from prior $4.96
Key Factors:
– Cigarette shipment volumes fell 10.5% for the quarter, worse than the industry decline of 8%
– Smokeable products OCI down 2.5% for the quarter due to higher promotional spending and volume declines
– Oral tobacco OCI grew 7% with higher pricing and more efficient promotions for on!
– Progress made expanding NJOY distribution, but minimal financial contribution so far
Market Share and Pricing
– Marlboro retail share was stable sequentially, grew in premium segment
– Net price realization up 8.6% for smokeables, showing ability to raise prices
– Total discount cigarette segment grew 1.1 points to 28.2% of market
– On! gained 0.7 points of share in oral tobacco, now at 6.9%
Industry/Regulatory Issues
– Cigarette industry volume under pressure from economy and illicit flavored e-cigs
– Altria estimates illicit e-vapor depressing cigarette volume by 1.5-2.5 points
– Calling for FDA enforcement against illegally marketed disposable e-vapor products
– Awaiting FDA action on potential menthol ban and nicotine limits in cigarettes
Capital Allocation
– $5.1B in dividends paid and $732M in share repurchases YTD
– Remain committed to dividend growth and share repurchases within cash flow
Outlook:
– Results reflect challenging cigarette industry dynamics negatively impacting volumes
– Pricing power and efficiencies helping protect profitability for now
– Transition to smoke-free portfolio advancing but remains long-term endeavor
– Uncertainty persists around regulatory environment for tobacco/nicotine
– Stock may remain rangebound near-term amid volatility and uncertainty
Overall, Altria faces headwinds from cigarette volume declines and regulatory challenges, but continues working to transition business to smoke-free while returning cash to shareholders. Execution risks remain around portfolio evolution.
🤓 Based on the analysis of Altria’s Q3 report and the web search results, here is my take on their proper valuation:
- Altria’s valuation depends on several factors, such as its future earnings growth, its ability to transition to smoke-free products, its exposure to regulatory risks, and its capital allocation strategy.
- Based on the current EPS guidance of $4.91-$4.98 for 2023, Altria’s P/E ratio is around 9, which is below its historical average of 12 and the industry average of 11. This implies that the market is discounting Altria’s future earnings potential due to the challenges it faces in the cigarette industry and the uncertainty around its smoke-free portfolio.
- However, Altria still has some strengths that could support a higher valuation, such as its pricing power, its cost efficiencies, its strong cash flow generation, and its shareholder-friendly dividend and buyback policy. Altria also has a diversified portfolio of smoke-free products, including oral tobacco, e-vapor, and heated tobacco, which could provide growth opportunities in the long term.
- Therefore, I think a fair valuation for Altria would be somewhere between 10 and 12 times its expected EPS for 2023, which translates to a price range of $49-$60 per share. This is slightly higher than the current market price of $40.50 and closer to the Morningstar valuation of $521. I think this range reflects both the risks and opportunities that Altria faces in its business segments.
😎 I have to agree, $40 is silly so let’s take the opportunity to add them to the Income Portfolio, as they are paying out $3.92 per $40.44 share – close to 10% – and we can make it over 10%:
- Buy 500 MO at $40.44 ($20,220)
- Sell 5 MO 2026 $42.50 puts at $8.25 ($4,125)
- Sell 5 MO 2026 $35 calls at $6.25 ($3,125)
That’s net $12,970 and, if we are called away at $35, that’s $17,500 for a $4,530 (34.9%) profit and they are paying 0.98 ($490) x 9 payouts = $4,410 (34%) so an overall 68.9% return at $42.50+ and worst case is we get assigned 500 more at $35 ($17,500) and we’re in 1,000 for net $30,470 ($30.47), which is still 24.6% off the current price – that’s our WORST case!
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For the LTP, we can do much, much better with:
- Sell 10 MO 2026 $42.50 puts at $8.25 ($8,250)
- Buy 50 MO 2026 $40 calls at $3.40 ($17,000)
- Sell 40 MO 2026 $47.50 calls for $1.10 ($4,400)
That’s net $4,350 on the $37,500+ spread and the plan is, of course, to sell 10 Jan $45 calls, now $1, for $2+, which is where they were a week ago. If we can generate $2,000 per quarter selling calls, that’s $18,000 (413%) back before we even count profits from the longs.