Altria: Raised FVE on Slower US Decline and Revised Capital Market Assumptions; Shares Undervalued

We’ve increased our fair value estimate for Altria to $58 per share from $49 as a result of two changes. First, we think the US cigarette industry will have a more gradual long-term decline than our previous contention as the pressure from vaping is fading rapidly. Second, we’ve lowered our cost of equity assumption to 7.5% from 9%, in line with the rest with our tobacco coverage as we think the low price elasticity of cigarettes offsets Altria’s single-market exposure, the main reason we saw higher systemic risk before. Our revised valuation implies a 2024 price/adjusted earnings ratio of 11.5 times, enterprise value/adjusted EBITDA of 8.5 times, and 7% dividend yield. These multiples are near the middle of the tobacco peer group given Altria’s pureplay US exposure—an attractive market but one facing headwinds to growth.