Altria Vs. British American Tobacco: A Financial Faceoff Altria Vs. British American Tobacco: A Financial Faceoff

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By Ronald Tech

Industry Dynamics

Investors grappling with the ever-changing tobacco landscape find themselves at a crossroads between two industry titans: Altria Group Inc (NYSE:MO) and British American Tobacco PLC (NYSE:BTI) aka BAT.

As global trends, regulations, and consumer preferences evolve, understanding the strategic positioning of Altria and BAT is crucial in determining which stock may be more promising.

Altria recently reported a surprising increase of 9.26% in earnings and 7.58% in revenue for the fourth quarter, propelling its stock higher. Meanwhile, BAT’s fourth-quarter results are eagerly anticipated.

Both companies are keenly aware of the shifting dynamics in the industry, with expectations of a decline in global smoking rates by 2025. Consequently, they are pivoting towards alternative products like vaping and tobacco-heating systems, recognizing the future decline in traditional tobacco use.

Strategic Approaches

Altria has been capitalizing on its rights to market the IQOS tobacco-heating system and has diversified into other “vice” industries, including investments in Anheuser-Busch and cannabis company Cronos. On the other hand, BAT has expanded into various product categories, particularly vaping, to counter the impact of declining cigarette consumption.

Financial Health and Profitability

Despite both companies acknowledging the shifting industry landscape, Altria boasts superior profitability with higher operating and net profit margins over the past 12 months, compared to BAT. Altria converts 42.6% of its revenue into net earnings, while BAT only converts around 31%. Additionally, Altria maintains a more favorable debt position, with lower interest payments relative to revenue compared to BAT, making its debt management a notable strength.

Dividend Yield

Altria boasts a higher annualized forward dividend yield of 9.77%, exceeding BAT’s 9.47%. This higher dividend yield presents a compelling case for potential investors, emphasizing the significance of consistent returns, particularly in an industry with limited growth prospects.

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Altria offers better value on a forward earnings basis compared to BAT, while trailing earnings peg BAT as the more favorable stock. Wall Street analysts foresee more upside associated with BAT stock, offering a 22.33% upside compared to Altria’s 16.75%.