Philip Morris (PM) and Altria (MO) stocks have done well this year as investors moved back to tobacco companies. Altria jumped to a record high of $53.9 in September, a 50% increase from its lowest point in 2023. It has risen by over 23% this year.
Philip Morris, on the other hand, peaked at $126.57 in September, 52% higher than the lowest level last year. It has also risen by over 26% this year.
Tobacco stocks are soaring
Other tobacco stocks are doing well this year. In the UK, British American Tobacco, is one of the best-performing companies in the FTSE 100 index, as it rose by over 25%. The same has happened in Japan, where Japan Tobacco has risen by over 15% this year.
Philip Morris and Altria are the two biggest companies in the tobacco industry with a market cap of over $184 billion and $85 billion, respectively.
The two companies have similar roots since Altria was the parent company of Philip Morris USA and Philip Morris International. It then decided to split the two businesses into two companies.
Altria focuses on the US market through its Philip Morris USA brand, where it sells popular brands like Malboro, Parliament, Basic, and Virginia Slims. Its investments in the e-vapor industry have not been all that successful.
For example, Altria invested billions of dollars in Juul, a company that went viral during the pandemic. It was then forced to write down this business heavily due to major legal challenges.
Meanwhile, Philip Morris has thrived by focusing on the international market where it sells tobacco brands like Marlboro, L&M, Bond Street, Muratti, and Philip Morris. It has also moved into other industries like the Reduced-Risk Products segment, where it sells IQOS, VEEV, and TEEPs.
PMI is doing better than Altria
The most recent financial results show that Philip Morris was doing much better than Altria because of its focus on key international markets. Altria focuses on the United States, where the number of smokers is not growing as it used to in the past.
According to the CDC, the US had over 28.3 million smokers in 2021 and killed over 480k each year. While these are huge numbers, the country had over 46.5 million smokers in 2000, meaning that the trend is going in the right direction.
Altria has also faced numerous fines for its business. Earlier this year, it paid $235 million for a JUUL-related settlement. Analysts expect it to pay more fines as we have seen with the opioids companies.
Therefore, Altria’s revenue growth has been relatively stagnant at around $20 billion in the past few years. Its profits have done well as its net income soared to over $10.1 billion in the trailing twelve months (TTM).
Philip Morris, on the other hand, has benefited from the growing number of smokers in the international segment. Its annual revenue has grown from over $29.8 billion in 2019 to over $36 billion in the TTM, which means that it has soared by 26% in this period.
This growth continued in the last quarter. Philip Morris revenue rose to $18.26 billion in the quarter from $16.9 billion in the same period last year.
Analysts expect that PM’s revenue will continue in the coming years. Its annual revenue is expected to be $37 billion this year followed by $40 billion next year.
Altria, on the other hand, has continued falling in the recent quarter. Revenue dropped by 4.6 in the quarter to $6.2 billion. Its annual revenue is expected to be $20.38 billion, down by 0.60% last year. It will then drop to $20.2 billion in the following year.
Altria vs Philip Morris
These growth metrics explain why Philip Morris’s stock is doing better than Altria. PM’s total return in the last decade has been 136% compared to Altria’s 103%. It has also risen by over 102.5% in the past five years compared to Altria’s 77%.
This performance explains why PM has a higher dividend yield than Altria. Its forward dividend yield is 4.54%, much lower than Altria’s 8.17%. Its five-year compounded annual growth rate (CAGR) is 2.7% compared to Altria’s 4.10%.
PM is also more expensive than Altria since it has a forward P/E ratio of 19.1, higher than Altria’s 8.02. Its forward three-year earnings multiple of 15 is higher than Altria’s 9.Altria also has higher margins. It has a net income margin of 50% compared to PMI’s 23%.
Altria seems like a better investment from a value investor’s perspective because it is cheaper than PM and has a higher dividend yield. However, I believe that Philip Morris will continue outperforming it in the long term because of its stronger revenue growth. It is also investing in the US through its Zyn brand.
Read more: Tobacco stocks are killing it in 2024: Altria is a bargain
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