Should Investors Buy Big Tobacco Stocks?

The Zacks Tobacco Industry is currently in the top 16% of over 250 Zacks Industries indicating that business may start to be stronger for these companies. High Inflation may reduce overall retail spending and consumption, but alcohol and tobacco products often remain on consumers’ lists of must-haves.

Let’s see if big tobacco giants Altria Group MO, British American Tobacco BTI, and Philip Morris International PM can be beneficial investments going into 2023.

Dividends

When it comes to big tobacco stocks, their strong dividends are usually the first attribute that sticks out to investors. In this regard, Altria Group leads the way. Altria offers an impressive 8.01% dividend yield at $3.76 per share.

Zacks Investment Research
Image Source: Zacks Investment Research

British American Tobacco’s annual dividend yield is second at 6.17%, with Philip Morris at 5.02%. Still, all the big tobacco stocks’ annual dividend yields are above the industry average of 4.98% and the S&P 500 ‘s 1.6% average.

Of course, dividends alone are not a reason to buy stocks. Evaluating performance and other fundamental metrics, along with growth is still necessary.

Recent Performance

The Zacks Tobacco Industry’s total return is +8% in 2022, to impressively outperform broader markets. With such high dividends, the total return does have a direct effect on the overall price movement in big tobacco stocks over a smaller time frame.

Year to date, BTI’s total return performance leads the way at +14% Vs. PM’s +9% and MO’s +3%. All three have outperformed the S&P 500’s -18%, with only Altria lagging the Tobacco Market’s +8.5%.

Zacks Investment Research
Image Source: Zacks Investment Research

Over the last decade, MO’s +149% total return tops PM’s +93% and BTI’s +36%. Only BTI’’s stock is behind the Tobacco Market’s +74%. However, all three big tobacco stocks have lagged the benchmark.

Zacks Investment Research
Image Source: Zacks Investment Research

Valuation

Pivoting to valuation, Altria and British American Tobacco stand out. Both stocks trade under $50 a share and just above 9.7X forward earnings. This is on par with the industry average P/E of 9.6X.

Altria’s stock trades well below its decade-high of 23.5X and at a 33% discount to the median of 14.5X. Similarly, BTI trades nicely below its decade-high of 19.7X and 30% beneath its median of 14.2X.

Zacks Investment Research
Image Source: Zacks Investment Research

In comparison, Philip Morris trades at $100 per share and 17.4X forward earnings, which is much higher than the industry average. While not appearing to offer a significant discount like its peers, PM stock is still below its decade-high of 24.9X but slightly above the median of 16.5X.

Zacks Investment Research
Image Source: Zacks Investment Research

Growth & Outlook

Altria sticks out here too, sales are forecasted to decline just over -1% in 2022 but rebound and rise 1% in fiscal 2023 at $21.01 billion. Even better, as shown in the nearby chart, earnings are expected to rise 5% this year and jump another 4% in FY23 at $5.06 per share. Earnings estimates revisions have slightly gone down over the last 90 days.

Zacks Investment Research
Image Source: Zacks Investment Research

For British American Tobacco, earnings are expected to drop -6% this year but climb 11% in FY23 at $4.74 a share. Earnings estimates are slightly down for BTI over the last quarter. On the top line, sales are anticipated to decline -1% in 2022 but rise 5% in FY23 to $34.49 billion.

Looking at Philip Morris, earnings are projected to drop -4% this year and decline -1% in FY23 at $5.71 per share. Earnings estimate revisions are also down for PM stock over the last 90 days. Sales are expected to be down -2% in 2022 and decline another -2% in FY23 at $29.95 billion.

Bottom Line

These three big tobacco stocks all land a Zacks Rank #3 (Hold) at the moment. With their total returns being impressively better than the broader market this year, investors might want to consider these equities for 2023 as well.

The monstrous dividends have certainly helped these stocks’ overall performance this year and they appear to be fairly valued at current levels. This combination could continue to help investors as most areas of the economy are expected to see slower growth next year.

Zacks Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.

This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.

Free: See Our Top Stock and 4 Runners Up >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Altria Group, Inc. (MO) : Free Stock Analysis Report

Philip Morris International Inc. (PM) : Free Stock Analysis Report

British American Tobacco p.l.c. (BTI) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.