Altria Group, Inc. (MO Quick QuoteMO - Free Report) currently trades at a forward 12-month price-to-earnings (P/E) ratio of 11.01 — a notable 24% discount compared to the Zacks Tobacco industry average of 14.49. This valuation gap becomes even more pronounced when compared to key competitors like Philip Morris International Inc. (PM Quick QuotePM - Free Report) (P/E of 21.95) and Turning Point Brands, Inc. (TPB Quick QuoteTPB - Free Report) (P/E of 16.39). While a low P/E ratio might catch the eye of a value investor, in Altria's case, it has been more of a reflection of persistent investor concerns rather than a hidden gem waiting to be discovered. With a Value Score of C, MO appears less attractive from a valuation standpoint. 

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The stock price performance tells a similar story. Over the past 12 months, Altria stock has returned 37.1%, significantly underperforming the industry average of 54.3%. In the same time frame, Philip Morris has delivered an impressive 65.8% return, while Turning Point Brands surged a remarkable 106.1%. Even shares of British American Tobacco p.l.c. (BTI Quick QuoteBTI - Free Report) have surged 45.2% in this time frame. This consistent underperformance implies more than just cyclical weakness — it points to core issues holding the stock back compared to more agile peers like Philip Morris and Turning Point Brands.

MO’s One-Year Price Performance Vs. Peers

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MO Struggles With Cigarette Volumes and Shifting Demand

At the heart of Altria's ongoing struggles is the decline in cigarette consumption. With smoking rates at historic lows, the company’s core customer base is shrinking. Although the company still holds a dominant share in the traditional cigarette market with its Marlboro brand, shipment volumes are falling, putting sustained pressure on both revenues and long-term growth prospects.

Younger demographics are turning away from traditional cigarettes due to health-conscious lifestyles, making Altria’s core tobacco products less relevant in a market shifting toward smoke-free alternatives. Compounding the challenge is the rapid rise of illicit e-vapor products. Weak enforcement has led to an unexpected surge in cross-category movement, with adult smokers turning to illegal vapor alternatives at a faster pace, further eroding Altria’s shares. Beyond consumer behavior, it faces mounting regulatory pressures. The U.S. Food and Drug Administration (FDA) has tightened restrictions on marketing practices. These headwinds create additional costs and uncertainty, particularly around market access. 

These trends have taken a toll on Altria's financial performance, particularly its Smokeable Products segment. Over the past few quarters, this core business unit has reported consistent revenue declines. In the fourth quarter of 2024, domestic cigarette shipments declined 8.8%, reflecting both the broader industry downturn and Altria’s loss in retail share. Much of this weakness is tied to economic pressure on adult consumers, who are scaling back spending amid persistent discretionary income challenges.

Altria’s Smoke-Free Strategy Faces Headwinds 

Altria is taking meaningful steps toward a smoke-free future, with a strong focus on harm reduction, regulatory compliance, and developing innovative alternatives for adult smokers. The company is building momentum with its NJOY and on! product lines as part of this long-term strategy. Its recently launched “Optimize & Accelerate” initiative is designed to modernize internal processes and drive faster progress toward its smoke-free vision.

However, this transformation faces a significant challenge: the rapid rise of illicit flavored disposable e-vapor products. Altria estimates that the e-vapor category grew by around 30% in 2024, with illegal products accounting for more than 60% of total category sales. This trend is undermining the company’s efforts to expand in the regulated e-vapor space, where NJOY is slowly gaining market share but remains outpaced by non-compliant alternatives.

The growth of these illicit products not only restricts Altria’s revenue potential in the smoke-free segment but also complicates regulatory enforcement across the category. Even as the company actively engages with regulators to strengthen oversight, the widespread availability of unauthorized e-vapor products continues to dilute the impact of Altria’s fully compliant offerings. 

MO’s Estimates Reflect Downtrend

The Zacks Consensus Estimate for Altria’s earnings per share for the current and upcoming financial years has been revised downward over the past 30 days. This shift indicates a growing bearish outlook among analysts and highlights potential obstacles the company may face in meeting its profitability goals. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

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Conclusion: Maintain a Cautious Stance on MO 

Despite Altria’s cheap valuation, the broader picture points to a more cautious approach. The combination of declining cigarette volumes, regulatory hurdles and growing popularity of illicit e-vapor products paints a challenging outlook. Until there is clearer evidence that Altria can successfully transition to a more sustainable product mix and regain growth momentum, the stock’s discount is likely to persist. Given the current headwinds and limited near-term visibility, we recommend investors avoid taking new positions in Altria. At present, MO carries a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.