Stock Analysis on Net
Stock Analysis on Net

Altria Group Inc. (NYSE:MO)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Altria Group Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 8.73%
01 FCFF0 9,921
1 FCFF1 9,165 = 9,921 × (1 + -7.63%) 8,429
2 FCFF2 8,616 = 9,165 × (1 + -5.99%) 7,288
3 FCFF3 8,241 = 8,616 × (1 + -4.35%) 6,411
4 FCFF4 8,017 = 8,241 × (1 + -2.71%) 5,736
5 FCFF5 7,931 = 8,017 × (1 + -1.08%) 5,218
5 Terminal value (TV5) 79,984 = 7,931 × (1 + -1.08%) ÷ (8.73% – -1.08%) 52,631
Intrinsic value of Altria Group Inc. capital 85,712
Less: Long-term debt, including current portion (fair value) 24,373
Intrinsic value of Altria Group Inc. common stock 61,339
 
Intrinsic value of Altria Group Inc. common stock (per share) $34.78
Current share price $42.92

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.

Weighted Average Cost of Capital (WACC)

Altria Group Inc., cost of capital

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Value1 Weight Required rate of return2 Calculation
Equity (fair value) 75,688 0.76 10.56%
Long-term debt, including current portion (fair value) 24,373 0.24 3.07% = 4.25% × (1 – 27.86%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,763,461,775 × $42.92
= $75,687,779,383.00

   Long-term debt, including current portion (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (25.60% + 22.00% + 35.30% + 35.40% + 21.00%) ÷ 5
= 27.86%

WACC = 8.73%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 1,149 1,128 1,188 1,223 1,322
Net earnings (losses) attributable to Altria 8,130 5,764 2,475 4,467 (1,293)
 
Effective income tax rate (EITR)1 25.60% 22.00% 35.30% 35.40% 21.00%
 
Interest expense, after tax2 855 880 769 790 1,044
Add: Cash dividends declared 6,828 6,636 6,490 6,327 6,130
Interest expense (after tax) and dividends 7,683 7,516 7,259 7,117 7,174
 
EBIT(1 – EITR)3 8,985 6,644 3,244 5,257 (249)
 
Current portion of long-term debt 1,121 1,556 1,105 1,500 1,000
Long-term debt, excluding current portion 25,112 25,124 26,939 27,971 27,042
Stockholders’ equity (deficit) attributable to Altria (3,540) (3,973) (1,606) 2,839 6,222
Total capital 22,693 22,707 26,438 32,310 34,264
Financial Ratios
Retention rate (RR)4 0.14 -0.13 -1.24 -0.35 —
Return on invested capital (ROIC)5 39.59% 29.26% 12.27% 16.27% -0.73%
Averages
RR -0.39
ROIC 19.33%
 
FCFF growth rate (g)6 -7.63%

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).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,149 × (1 – 25.60%)
= 855

3 EBIT(1 – EITR) = Net earnings (losses) attributable to Altria + Interest expense, after tax
= 8,130 + 855
= 8,985

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [8,985 – 7,683] ÷ 8,985
= 0.14

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 8,985 ÷ 22,693
= 39.59%

6 g = RR × ROIC
= -0.39 × 19.33%
= -7.63%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (100,061 × 8.73% – 9,921) ÷ (100,061 + 9,921)
= -1.08%

where:

Total capital, fair value0 = current fair value of Altria Group Inc. debt and equity (US$ in millions)
FCFF0 = the last year Altria Group Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Altria Group Inc. capital

FCFF growth rate (g) forecast

Altria Group Inc., H-model

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Year Value gt
1 g1 -7.63%
2 g2 -5.99%
3 g3 -4.35%
4 g4 -2.71%
5 and thereafter g5 -1.08%

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)
= -7.63% + (-1.08% – -7.63%) × (2 – 1) ÷ (5 – 1)
= -5.99%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -7.63% + (-1.08% – -7.63%) × (3 – 1) ÷ (5 – 1)
= -4.35%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -7.63% + (-1.08% – -7.63%) × (4 – 1) ÷ (5 – 1)
= -2.71%