Altria (NYSE: MO) and Beyond Meat (NASDAQ: BYND) have both been struggling over the past few years. Altria, the largest tobacco company in the United States, faces a persistent decline in adult smoking rates. Beyond Meat, which became the first publicly traded producer of plant-based meat in 2019, has been broadly dismissed as a fad stock.
Over the past four years, Altria's stock has declined 16% as Beyond Meat's stock plunged 90%. Should investors buy either of these out-of-favor consumer-staples stocks today?
Altria faces existential challenges
From 2019 to 2022, Altria's annual shipments of cigarettes dropped from 101.8 billion sticks to 84.7 billion sticks. The retail market share of its flagship brand Marlboro also dipped from 43.1% to 42.5%.
To offset those persistent declines, Altria acquired a 35% stake in the domestic e-cigarette maker Juul for $12.8 billion in 2018. But that investment backfired after the Food and Drug Administration (FDA) banned all of Juul's products last year. After taking a massive write-down on that investment, Altria bought the e-cigarette maker NJOY -- which already had its products cleared by the FDA -- for $2.75 billion this June.
Altria believes it can sell more e-cigarettes to reduce its dependence on traditional cigarettes and its other tobacco products like cigars and snus. But the company will still generate the lion's share of its revenue from cigarettes for the foreseeable future.
To counter that slowdown, it will likely keep raising its cigarette prices, cutting costs, and buying back its own shares to squeeze more earnings per share (EPS) from its stagnant revenue.
That's why Altria's adjusted EPS had a compound annual growth rate (CAGR) of 5% from 2019 and 2022, while its revenue (net of excise taxes) rose at an anemic CAGR of 1%. From 2022 to 2025, analysts expect its revenue (on the same basis) to have a CAGR of roughly 0% while its adjusted EPS increases at 3%.
That grim outlook suggests Altria will struggle to overcome the secular decline of the domestic cigarette market. Its stock might seem cheap at eight times forward earnings, and its forward dividend yield of 9.2% might look tempting to income-oriented investors, but it could continue to trade at its discount valuation until it addresses its existential challenges.
Beyond Meat's business model doesn't look sustainable
Beyond Meat's revenue surged 239% in 2019 as the media hype regarding plant-based meats drove restaurants, retailers, and consumers to try its products. But in 2020, its revenue only rose 37% as restaurants closed down during the pandemic and consumers pivoted back toward cheaper animal-based meat products.
Beyond Meat initially expected its sales to bounce back after the pandemic ended, but its revenue grew a mere 14% in 2021 and dropped 10% in 2022. Its net loss more than tripled in 2021 and more than doubled in 2022.
The anticipated recovery never happened because inflation curbed its pricing power and competitors like Impossible Foods carved up the shrinking market. As a result, its margins collapsed as it liquidated its excess inventories. An ill-fated deal to sell plant-based jerky with PepsiCo (NASDAQ: PEP) further compressed its annual gross margins, which plummeted from 33.5% in 2019 to negative 5.7% in 2022.
From 2022 to 2025, analysts expect Beyond Meat's revenue to decline at a negative CAGR of 4% as it gradually narrows its net losses. It believes it can stabilize its business as it downsizes its workforce (including a 19% reduction to its non-production workforce this year), clarify its marketing and pricing strategies, and focus on its higher-growth overseas markets.
But with $1.1 billion in debt and $233 million in cash and equivalents last quarter, it's not clear if it can survive long enough for that turnaround to take shape. Its market cap might seem cheap at about 1.5 times this year's sales -- but when we factor its debt into its enterprise value, it doesn't look like a bargain at four times this year's sales.
The better buy: Altria
I wouldn't rush to buy Altria or Beyond Meat right now, especially when so many better dividend stocks or growth stocks are still on sale. But if I had to choose one over the other, I would definitely pick Altria over Beyond Meat because its business is more stable, it's firmly profitable, it pays a hefty dividend, and its stock looks a lot cheaper.
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