Stock Analysis on Net
Stock Analysis on Net

Altria Group Inc. (NYSE:MO)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Altria Group Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 10.57%
01 FCFE0 8,523
1 FCFE1 3,509 = 8,523 × (1 + -58.83%) 3,174
2 FCFE2 1,957 = 3,509 × (1 + -44.24%) 1,600
3 FCFE3 1,377 = 1,957 × (1 + -29.65%) 1,018
4 FCFE4 1,169 = 1,377 × (1 + -15.06%) 782
5 FCFE5 1,164 = 1,169 × (1 + -0.47%) 704
5 Terminal value (TV5) 10,483 = 1,164 × (1 + -0.47%) ÷ (10.57% – -0.47%) 6,342
Intrinsic value of Altria Group Inc. common stock 13,620
 
Intrinsic value of Altria Group Inc. common stock (per share) $7.72
Current share price $43.54

Based on: 10-K (reporting date: 2023-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.90%
Expected rate of return on market portfolio2 E(RM) 13.54%
Systematic risk of Altria Group Inc. common stock βMO 0.66
 
Required rate of return on Altria Group Inc. common stock3 rMO 10.57%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMO = RF + βMO [E(RM) – RF]
= 4.90% + 0.66 [13.54% – 4.90%]
= 10.57%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Altria Group Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared 6,828 6,636 6,490 6,327 6,130
Net earnings (losses) attributable to Altria 8,130 5,764 2,475 4,467 (1,293)
Net revenues 24,483 25,096 26,013 26,153 25,110
Total assets 38,570 36,954 39,523 47,414 49,271
Stockholders’ equity (deficit) attributable to Altria (3,540) (3,973) (1,606) 2,839 6,222
Financial Ratios
Retention rate1 0.16 -0.15 -1.62 -0.42 —
Profit margin2 33.21% 22.97% 9.51% 17.08% -5.15%
Asset turnover3 0.63 0.68 0.66 0.55 0.51
Financial leverage4 — — — 16.70 7.92
Averages
Retention rate -0.51
Profit margin 15.52%
Asset turnover 0.61
Financial leverage 12.31
 
FCFE growth rate (g)5 -58.83%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net earnings (losses) attributable to Altria – Cash dividends declared) ÷ Net earnings (losses) attributable to Altria
= (8,130 – 6,828) ÷ 8,130
= 0.16

2 Profit margin = 100 × Net earnings (losses) attributable to Altria ÷ Net revenues
= 100 × 8,130 ÷ 24,483
= 33.21%

3 Asset turnover = Net revenues ÷ Total assets
= 24,483 ÷ 38,570
= 0.63

4 Financial leverage = Total assets ÷ Stockholders’ equity (deficit) attributable to Altria
= 38,570 ÷ -3,540
= —

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.51 × 15.52% × 0.61 × 12.31
= -58.83%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (76,781 × 10.57% – 8,523) ÷ (76,781 + 8,523)
= -0.47%

where:
Equity market value0 = current market value of Altria Group Inc. common stock (US$ in millions)
FCFE0 = the last year Altria Group Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Altria Group Inc. common stock

FCFE growth rate (g) forecast

Altria Group Inc., H-model

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Year Value gt
1 g1 -58.83%
2 g2 -44.24%
3 g3 -29.65%
4 g4 -15.06%
5 and thereafter g5 -0.47%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= -58.83% + (-0.47% – -58.83%) × (2 – 1) ÷ (5 – 1)
= -44.24%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -58.83% + (-0.47% – -58.83%) × (3 – 1) ÷ (5 – 1)
= -29.65%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -58.83% + (-0.47% – -58.83%) × (4 – 1) ÷ (5 – 1)
= -15.06%