Over the past ten years, Altria ( MO 0.48 %), a Marlboro cigarette manufacturer, has been fascinating to follow. The property hasn't been a home run if you look at its share price, but it has managed to survive Juul's's multibillion dollar error while continuing to generate annual profits.
In a way, it serves as an example of how tenacious the tobacco industry is despite decades of declining smoking rates. While choosing to invest in tobacco companies is a personal choice, the non-tobacco aspect of Altria doesn't seem to be getting more attention these days.
Here is the non-tobacco justification for Altria's's potential to generate enormous profits for investors in the upcoming year.
A billion dollar interest that merits recognition
10 % of the proceeds from your beer purchases go to Altria when you purchase a drink of Bud Light, Stella Artois, Michelob Ultra, or any of its child makes. This is due to the tobacco behemoth's's ownership of 10 % of Anheuser-Busch InBev, the largest beer company in the world( BUD 0.37 %). Altria's's share is worth about$ 11.4 billion, according to a quick glance at its$ 114 billion market cap.
SABMiller, which Altria previously owned a sizeable interest in, merged with Anheuser-Busch in 2016. Altria was unable to sell its stake until late 2021 due to the five-year locking that came with the agreement. Altria is now free to sell its securities, but it is clinging on tenaciously instead.
Since the acquisition, things haven't been easy for either Altria or Anheuser - Busch. The baker has struggled with a mountain of debt, and the pandemic has just made it worse as bars and restaurants close.
Why does Altria now be stockholders?
Some investors may have supported Altria's's decision to sell its stock, buy billions of dollars, acquire shares, or give investors a sizable income. However, businesses invest similarly to people, and you don't bring up a high-quality item quickly. The largest producer of a product that society has consumed for years is Anheuser - Busch.
The company generates free cash flow of$ 0.14 of every dollar of revenue, making it extremely profitable. Despite having a balance sheet burdened with interest payments totaling more than$ 2.8 billion over the previous 12 months, this is the case. The strong cash flow of Anheuser - Busch may only become more obvious as it reduces debts( since interest costs reduce Cash flow )).
Additionally, the ale industry doesn't seem to have cleaned up. Over the next three to five years, researchers predict that Anheuser-Busch will increase earnings per share by almost 11 % annually.
How does that earn you cash?
Investors could profit greatly from the brewer's's forward price-to-earnings ( PE ) ratio of 17 because the stock trades somewhat on par with the larger market, which currently commands a PE of 19. In other words, Altria's's stake gains about$ 1 billion as a result of increasing Anheuser-Busch by roughly 10 % annually.
Altria's's operating profits were close to$ 12 billion in 2022, which is equivalent to an 8 % increase in profits per year. Why cause a commotion? It may be more difficult to ignore the company's's Anheuser-Busch stake as it trades at steadily lower prices, which is currently a ahead PE of 9.
By investing in( and holding ) high-quality companies that consistently add value over time, Warren Buffett has amassed a fortune for shareholders. Although Altia made a similarly choice in Anheuser-Busch, it doesn't receive nearly as much attention. Owners should hold out hope that Altria keeps holding onto and profiting from the long-term success of this brilliant company.
