What happened
Shares of Altria Group (MO 0.40%) gained 6.4% in April, according to S&P Global Market Intelligence. This compares to the S&P 500 Index's decline of 8.8% last month. The stock is getting a boost from rising valuations across the consumer-staples sector and just put up a solid first-quarter earnings report.
So what
On April 28, Altria reported its first-quarter results. The owner of Phillip Morris USA (maker of Marlboro cigarettes), chewing tobacco, cigars, and nicotine-pouch brands generated $5.9 billion in revenue in the first quarter, down 2.4% year over year.
On its face, this might not seem like a great result, but investors should remember that cigarettes have been in decline for many decades at this point, hurting demand for Altria's key Marlboro business.
The company counteracts this decline by increasing prices. For example, in the first quarter, Altria's smokable-products segment actually grew operating income by 7.9% even though Marlboro volumes declined 5.8% year over year.
Image source: Getty Images.
So the business is looking good, but on top of this, Altria is also consistently returning capital to shareholders. Its dividend yield still sits at 6.43% right now, which might be attracting investors who are moving from higher-risk to lower-risk investments at the moment. Share repurchases were $576 million in the first quarter, which will slowly reduce Altria's shares outstanding and increase earnings per share (EPS).
Lastly, the consumer staples sector has seen rising valuations over the last few months. This has driven up Altria's stock price since it is a key business in the sector. At the beginning of 2022, Altria's price-to-operating-income (P/OI) was around 7, while today it is closer to 9.
MO operating P/E ratio. Data by YCharts.
No what
The stock is outpacing the broad market, but that doesn't mean it is too late to buy Altria Group. The stock still has a P/OI below 9 and should be able to counteract consistent volume declines by raising prices and increasing margins. The non-cigarette businesses, like tobacco-free nicotine pouches, are also doing quite well right now, with pack volumes growing close to 100% year over year in the first quarter.
If you are comfortable owning tobacco stocks and are worried about inflation and a recession, Altria Group can be great for your portfolio.
