EUR 850.00 For Business Accounts Only

Morningstar | Altria remains number one in U.S. tobacco.

We award Altria a wide moat rating based on the intangible assets around its Marlboro brand, which controls more than 40% of the U.S. cigarette market. The strength of this brand should support pricing increases that eclipse continued volume declines in the United States. While the firm’s other segments (smokeless, wine, innovative tobacco, and a 10.5% stake in a combined SABMiller/Anheuser-Busch InBev) should continue to grow, we believe cigarettes will remain the key driver of revenue and profitability. Given the low capital requirements of its businesses, Altria should be able to expand its strong dividend by continuing to return roughly 80% of net income as dividends over our forecast. Having sold the international rights to many of its brands, Altria mostly operates in the challenging U.S. tobacco industry. U.S. cigarette volume is in secular decline (we expect volume to fall 3.6% annually for the next decade), and the Food and Drug Administration has set its sights on regulating nicotine levels in cigarettes. The threats of regulation and taxation have overtaken litigation as the greatest risks to an investment in tobacco, in our view. Despite these headwinds, tobacco manufacturing is still a lucrative business, and we think Altria will generate steady medium-term earnings growth as pricing and cost control more than offset volume declines. Altria owns 10.5% of AB InBev following the brewer's acquisition of SABMiller, which gives it exposure to the global beer market via this wide-moat entity. Altria also holds leading shares in moist smokeless tobacco and machine-made cigars. Its Copenhagen and Skoal brands have increased volume and combined enjoy roughly a 50% share in the smokeless tobacco market, which is growing as more tobacco consumers try noncigarette products.Altria is also rolling out its MarkTen and Green Smoke e-cigarette brands across the U.S. While the e-cig category could be a way for tobacco players to capture consumers leaving cigarettes, e-cig growth has slowed and the products are currently unprofitable. We think Altria will be slow and deliberate as it expands its offerings.