Altria Group (NYSE: MO) has been mainly known as a purveyor of cigarettes. That’s a tough business as people become more health-conscious and regulators aren’t fond of cigarette manufacturers.
Yet Altria just got the green light from federal regulators to commercialize an apparently less harmful alternative to traditional cigarettes. There’s certainly no guarantee that the cigarette-replacement product will gain traction among consumers, but at least there might be some benefit for smokers and for Altria’s public image.
Bullish news
It’s definitely bullish news for Altria that the company just received Food and Drug Administration (FDA) authorization for the marketing of four menthol-flavored e-vapor products. It now has the only FDA-authorized menthol e-vapor products on the market.
The four products are all under Altria’s NJOY brand: Ace Pod Menthol 2.4%, AceE Pod Menthol 5%, Daily Menthol 4.5%, and Daily Extra Menthol 6%. NJOY isn’t a brand-new product line; its distribution spanned more than 80,000 stores in 2024’s first quarter.
Without delving too far into the science of e-vaping/e-cigarettes, they’re basically a mechanism allowing the user to inhale a nicotine-infused aerosol. Johns Hopkins Medicine acknowledges that e-vaping is less harmful than smoking traditional cigarettes but also warns that it’s not completely safe. As one might expect, Altria is emphasizing e-vaping’s potential for reduced harm.
This is a watershed moment for the vaping industry as a whole, and it’s a pivot for the FDA, which previously rejected other menthol versions of vaping brands. One-third of traditional cigarettes sold in the U.S. are menthols, so Altria could have a significant revenue opportunity with the newly authorized menthol e-cigarettes.
This might be a necessary shift for the company since cigarette smoking in the U.S. is on the decline. Investors should monitor NJOY sales and hope that Altria fares better with NJOY than it did with the failed Juul vaping brand, which it ended up divesting last year.
A solid defensive pick
Beyond the effects of the FDA’s decision, Altria has something to offer value hunters, income collectors, and defensive-minded investors generally. During a time when stock indexes are often heavily weighted toward high-multiple technology giants, Altria stock looks like a comparative bargain. Currently, it has a trailing-12-month price-to-earnings (P/E) ratio of just 9.64, as measured under generally accepted accounting principles (GAAP).
The company is also willing to return value to its shareholders. Its board authorized a $2.4 billion increase in the existing $1 billion share buyback program during this year’s first quarter. Moreover, Altria pays a hefty 8.52% forward dividend yield.
Altria has a good track record of increasing its dividend distributions, and it’s hard to imagine that they are unsafe — the company recently had $3.61 billion worth of cash and cash equivalents. On the other hand, it reported moderate year-over-year revenue and EPS declines in the first quarter.
So, Altria isn’t undergoing blockbuster growth at the moment. Still, at least federal regulators authorized some vaping products. With that in mind, investors can add a few Altria shares as a defensive holding in a legacy tobacco company that might actually be credited with reducing harm to the public’s health, if you can believe it.
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David Moadel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Altria Investors Just Got Some Bullish News was originally published by The Motley Fool
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