Where Will Altria Stock Be in 1 Year?

Altria's (MO 1.45%) stock rose nearly 6% on Feb. 1 after its fourth-quarter report. The domestic tobacco leader's revenue (net of excise taxes) stayed nearly flat year over year at $5.08 billion but missed analysts' estimates by $70 million. Its adjusted earnings rose 8% to $1.18 per share and cleared the consensus forecast by two cents.

Altria's bottom line beat suggested that its traditional tactics of raising prices, cutting costs, and buying back shares still enabled it to squeeze out higher earnings per share as declining smoking rates throttled its shipments. But even after its post-earnings pop, Altria's stock remains down about 6% over the past 12 months. Will it head higher by the end of 2023?

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Altria's core business is still shrinking

Altria generates most of its revenue from its cigarette business, which sells its flagship Marlboro brand and other smaller brands. It also sells cigars, snus, nicotine pouches, and e-cigarettes. Altria's growth in revenues and cigarette shipments have decelerated over the past few years as smoking rates declined sharply in the U.S. Its market share also declined as aggressive competitors like British American Tobacco's (BTI -0.30%) Reynolds American carved up that shrinking market.

Data source: Altria. *Adjusted for trade inventory movements and other factors.

In 2022, Altria's slowdown intensified as inflation and elevated gas prices caused many smokers to buy fewer packs of cigarettes. High excise taxes, which have driven the cost of a pack above $10 in certain states, also likely preventing more consumers from lighting up.

Altria didn't provide any top-line guidance for 2023, but analysts expect its revenue to rise 1% as it continues to hike its prices to offset its sluggish shipments. The macro situation could also improve and encourage smokers to buy more cigarettes again. Altria expects its adjusted EPS to rise 3% to 6% for the year as it continues to cut costs and buy back shares. It bought back $1.8 billion in shares in 2022, and it just authorized a new $1 billion buyback plan, which will last until the end of 2023.

But Altria is still investing in non-smoking products

Altria repeatedly tried to offset its declining cigarette sales by selling alternative smoking products, but none of those efforts have moved the needle yet. It once sold its own MarkTen and Green Smoke e-cigarettes, but it discontinued both brands in 2018 and acquired a 35% stake in the domestic leader Juul for $12.8 billion instead. Unfortunately, the value of that stake plummeted after the Food and Drug Administration (FDA) banned Juul's products in mid-2022.

Altria also partnered with its overseas counterpart Philip Morris International (PM -2.96%) to sell its iQOS heated tobacco products (which heat up tobacco sticks instead of burning them) domestically, but PMI doesn't plan to renew that deal when it expires this April.

Looking ahead, Altria plans to develop its own first-party e-cigarette products, forge new partnerships (including a joint venture with Japan Tobacco (JAPA.Y -1.21%) to sell its Ploom heated tobacco sticks in the U.S.), and ramp up its digital consumer engagement efforts. But it doesn't expect any of those efforts to significantly boost its capex, which should remain roughly flat year over year at $175 to $225 million in 2023.

Where will Altria's stock be in a year?

At $48, Altria's stock trades at just nine times the midpoint of its 2023 EPS guidance. It also pays a hefty forward dividend yield of 8.5%. That low valuation and high yield should limit its downside potential and make it a safe haven play if the bear market drags on, but it's probably not the best stock to keep holding if a new bull market starts.

I personally believe a new bull market will start later this year as inflation is reined in and interest rates stabilize. Once the macro outlook improves, investors will likely abandon Altria because its core business is still shrinking. In short, Altria's stock might remain fairly stable over the next 12 months -- but I don't expect it to generate any market-beating gains.