Why Altria’s Stock Could Be a Buy and Philip Morris Isn’t

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Analyst Bonnie Herzog raised her rating on Altria to Buy from Neutral and her price target to $57 from $48

Fabrice Coffrini/AFP via Getty Images

Altria

Group has been the standout in Big Tobacco this year, and Goldman Sachs argues that strength looks set to continue, thanks to its defensive, domestic-focused business, making it a better buy than

Philip Morris International
.

Analyst Bonnie Herzog raised her rating on Altria (ticker: MO) to Buy from Neutral and her price target to $57 from $48. By contrast, she cut her rating on Philip Morris (PM) to Neutral from Buy, and lowered her price target to $100 from $116.

Altria stock was up 2.3%, at $53.43, in early Tuesday trading, while Philip Morris stock was up 0.6%, at $94.66. The

S&P 500
was up 0.4%.

Not surprisingly, a lot of Herzog’s decision is down to the current geopolitical situation. She calls Altria “an attractive investment in the current risk-off environment as investors become increasingly concerned about stagflation, placing a greater premium on U.S. based companies with strong free cash flows, high and stable margins and attractive FCF [free cash flow] and dividend yields.”

Altria stock has a 6.9% dividend yield and an average annual FCF generation of around $8 billion over the past three years.

Herzog also highlights the company’s strong margins and balance sheet, the loyalty of its Marlboro customer base, and the shares’ valuation. With its shares trading around 10 times her fiscal 2023 estimates, they stand at an 18% discount to their five-year historical average and a 47% discount to the S&P 500.

By contrast, she thinks the Russian invasion of Ukraine has clouded the picture for Philip Morris. The two countries account for about 8% of Philip Morris’s business, and…

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